Turkey, Volkswagen close to plant deal after meeting between Erdoğan, senior company official

Published 07.09.2019 00:12

Turkey is increasingly confident German carmaker Volkswagen will build a production plant in the country after an "extremely positive" meeting between a senior company official and President Tayyip Erdoğan this week, three Turkish sources said.

Reuters reported last week that the two sides had been holding talks over Turkey's vehicle tax regime to conclude the 1 billion euro ($1.1 billion) investment.

The carmaker, which has also considered making the investment in Bulgaria, has not announced a final decision, but sources familiar with the talks have said Volkswagen is positive about investing in Turkey and was close to taking the step.

Erdoğan and a high-ranking VW official overcame most of the problems during a meeting this week, one Turkish source with knowledge of the matter said. A Volkswagen source said Erdoğan had met with VW Chief Executive Herbert Diess this week.

"There were previously some small issues, such as the tax arrangements on the cars that will be sold. In the meeting, an almost complete agreement was reached," the Turkish source said. "If there isn't a last minute problem, the investment will be made in Turkey."

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.

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. A source had said Turkey was trying to find a formula to 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.

Czech Prime Minister Andrej Babis said on Tuesday during a visit to Ankara that Volkswagen is making a big investment in Turkey.

"We heard that Volkswagen is making a big investment in Turkey," Babis said.

A second Volkswagen source said only minor matters still had to be clarified, mainly on tax issues. The agreement was expected to be reached in a few weeks and the plant is expected to be built in the western Manisa province, the source said.

"There is no problem any longer about thinking that the investment will be made in Turkey. This decision will be announced in a short while after the final adjustments are made," a second Turkish source said.

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 of Lower Saxony (Niedersachsen), one of the stakeholders in VW, was also reportedly backing the decision.

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 to 2 billion euros is reported to be 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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