Volkswagen discussing Turkish car tax as it seeks deal on plant, sources say

Published 31.08.2019 00:25

German carmaker Volkswagen is holding talks with officials in Ankara over Turkey's vehicle tax regime as it seeks to conclude a 1 billion euro ($1.1 billion) investment to build a production plant in Turkey, two sources said Thursday.

The company said last month that no decision had yet been reached on the location of a new multi-brand plant, but sources familiar with the talks said Volkswagen is positive about investing in Turkey and was close to taking the step. The sources did not say what assurances Volkswagen is seeking on vehicle tax. Car purchases in Turkey incur a special consumption tax which ranges from 45% to 60% for engines up to 1.6 liters and rises to 100%-110% for engines up to 2 liters.

"Volkswagen is largely ready to invest a billion euros in Turkey," one of the sources said. "The only standing request VW has is on taxation on the vehicle market," the source added, saying Turkey was trying to find a formula that would address Volkswagen's concerns without putting existing car producers at a disadvantage.

Major producers such as Fiat, Renault, Ford, Hyundai and Toyota produced more than 1.3 million motor vehicles in Turkey last year.

The steep Turkish taxes on larger cars limit most buyers and local producers to smaller engine sizes. Cars with engines of less than 1.6 liters made up 96% of Turkey's new car market in 2018.

Volkswagen had also been looking at the new production plant in Bulgaria, but the sources said it was now close to finalizing the deal with Turkey. "There is only one issue left, and that is the taxation system," the second source said, adding that the differences could be overcome. "Even if it is not implemented immediately, a pledge for change [in the tax system] at a specific date in the future would be enough. They are planning to convey this request to the Turkish president. A final decision will materialize shortly." In November 2018, the carmaker announced its intentions to build a new industrial factory in Eastern Europe in which, among others, Skoda Karoq and Seat Ateca model vehicles under VW will be produced.

As time went on, multiple rumors on who will host VW's new plant have hit the headlines.

Initially the company's list of potential hosts included five countries, but the list has since narrowed the choice down to Turkey and Bulgaria as the most likely locations.

Multiple reports have since said that VW is planning to build a multi-brand production plant in Turkey. German media even said that Qatar, which owns a 17% stake in Volkswagen, was urging the supervisory board to pick Turkey for the plant. The German state Lower Saxony (Niedersachsen), one of the stakeholders of VW, was also reportedly backing the decision. The plant is reportedly planned to be built near Turkey's western coastal city of İzmir.

On the other hand, officials from the German carmaker have been paying visits and holding talks in the two candidate countries over the past months.

VW CEO Herber Diess paid a visit to Turkey in July and met President Recep Tayyip Erdoğan. The meeting reportedly had an effect on the company's final decision. Diess's visit was not his first in the recent period as he had come to Turkey and established contacts a number of times before.

On the other hand, Presidential Investment Office head Arda Ermut also conducted negotiations with Volkswagen and conveyed important messages to the brand. Ermut pointed out the advantages and incentives of Turkey, highlighting the importance of the factory not only as an investment but also in the symbolic sense.

Turkey has been said to have a high chance of being chosen in terms of the factors that direct the industry investment in an automotive brand, such as qualified human resources, subindustry capacity, logistics solutions, the total market size and the export opportunities to neighboring countries.

An investment of 1.3 billion euros ($1.46 billion) to 2 billion euros is projected for the new plant, which is expected to provide employment for approximately 5,000 people. The factory is expected to begin production in 2022 and serve as one of the most important production facilities in the region.

Earlier, the German group also agreed with America's Ford to produce light commercial vehicles at Turkey's Ford Otosan plants.

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