Tuesday 6 November 2012

£80m EU loan for Turkish Transit plant

It is curious that in the year General Motors confirmed Luton, UK as the focus of its European Vivaro van production, Ford elected to vacate its Swaythling, Southampton plant in favour of centralised Transit van production in Turkey where costs are lower.

The interesting difference is that Turkey is effectively outside the principal European trading community. However, it cannot be ignored that in June this year, the European Investment Bank (EIB) approved a £80 million loan to help ramp up production of Transit vans at the Ford Otosan facility at Kocaeli, Turkey.

The UK, France, Germany and Italy are the main source of funds for the EIB.

The loan was agreed as part of a billion dollar investment plan – about £600 million – for Ford’s 395-acre site in Kocaeli. The application for the loan was made in October 2011 to finance the modernisation of the plant ahead of new generation Transit 6.

The eight-year loan, with a two-year grace period and 2% interest rate, is seen as “cheap” money when Turkish inflation is running at around 9%.

The EIB is owned by the 27 member states of the European Union (EU), lending funds to various investment and job-promoting projects across the EU and its borders.

It is understood, according to the UK Treasury Department, Ford benefited from up to £450 million of EIB funding in 2010. 

Ford is forecasting European losses of £930 million (US$1.5 billion) and claimed it could not sustain two Transit plants. Ford Otosan sold 35,000 Transit vans in Turkey last year and shipped 48,000 abroad. General Motors Europe is also loss-making and currently finds the European region a tough market place.

Ford’s motive for moving Transit production from Southampton to the Kocaeli plant – opened in 2001 – must be to reduce unit vehicle costs, increase plant utilisation and hence profitability in its European organisation. Otherwise why do it?

UK trades' unions make the point that Ford’s decisions to invest in its cheaper overseas facilities, such as Kocaeli, sound the “death knell” for Southampton. At the moment they are mulling whether to stage industrial action to make their feelings more clearly understood.

Ford Otosan is 41.04% owned by Ford Motor Company, 41.04% by the Koc Group and 17.92% publicly owned. The plant has 7,414 blue collar workers and 2,167 white collar staff.

A Ford presentation for the Turkish business, dated January 2012, shows current annual production running at 330,000 units of which 320,000 stems from Kocaeli and the balance from Inönü. It is planned to raise output of the Kocaeli plant to 415,000 after 2014 of which some 15,000 will come from Inönü.

Today, about 70% of Transit vans sold in the UK are sourced from Turkey. The Kocaeli plant built 185,000 Transits last year. According to Ford, Kocaeli will be able to "comfortably absorb" Southampton's production shedules. 

The presentation reveals (first 9 month 2011 figures) net sales of US$3.99 billion and profit before tax of US$381 million; after tax profit was $313 million.

Vauxhall/Opel has plans to launch the next generation Vivaro at Luton from Spring 2014. The facility has the potential to produce 100,000 vans a year, effectively on three shifts. From that date, the Luton plant will no longer build vans for Renault (16,000 a year at the last count) which will in future produce its Trafic van from Sandouville, near Le Havre, France.

Ford’s Southampton plant last year built some 28,000 vans last year from a workforce of some 500 employees working on single shift. In the UK last year, Transit led the light commercial van market with registrations of 58,817; so far this year it has sold 47,000 units. Last year also, Ford sold 4,000 Transit Connect vans and so far this year it has registered 6,250.

The Koc Otosan business was founded as a Ford assembler in Turkey in 1959. In 1982, it launched the Inönü Truck and Engine Plant and 15 years later Ford assumed a 41% stake in the business. The Kocaeli plant was opened in 2001 followed by the launch of Transit Connect in 2002. The next year, the Ford Cargo heavy commercial range was launched. And last year, the company unveiled the Transit Connect New York City Taxi.

Meanwhile, as Ford executives further develop their plans to shutter the Swaythling plant, the light commercial vehicle (van) market in the UK will be wondering what life will be like in 2013/2014 when more and more Turkish-built Transits arrive.

Without a doubt, 2014 will be a tough year for Vauxhall/Opel as it tries to consolidate its position in the UK in the face of mounting competition, and boost its penetration throughout the rest of Europe. Vehicle pricing will be complex and difficult for the major UK market players: Fiat (Ducato), Ford, Iveco, Mercedes-Benz, PSA, Renault, Vauxhall/Opel and Volkswagen.