Tofas JV to invest $1 billion in Turkish plant

Fiat's Turkish joint venture, Tofas, plans to invest US$1 billion to produce its Linea replacement, adding different variants to the Tofas plant.

Tofas, a joint-venture (JV) between Turkey's Koc Holding and Italy's Fiat, is to expand its investment programme and spend a total of US$1 billion to produce three new cars in Turkey, mainly destined for export, according to the Zaman newspaper.

The automaker, however, chose not to disclose details of the models, which will be a hatchback, a sedan, and a station wagon (estate).

Immediately after the announcement, the automaker's shares gained more than 3.6 per cent to TRY14.20 (US$6.25), whereas Istanbul's main share index fell 0.3 per cent.

The automaker announced last year that it would spend US$520 million to build around 580,000 units of a new sedan model. Now, the automaker has announced plans to build a new hatchback and station wagon – raising total production to 700,000 units cumulatively – by increasing total investment to US$1 billion.

The hatchback is expected to replace the Bravo, and the sedan variant will replace the Linea currently sold in Turkey and Central and Eastern Europe.

In a written statement to the Public Disclosure Forum, the automaker revealed its target of producing 1.3 million hatchbacks, station wagons and sedans in Turkey between 2016 and 2023.

The automaker aims to bring the hatchback and sedan to market in 2016, focusing mainly on exports.

Commenting on the development, the chairman of Koç Holding, Mustafa V. Koç, said: "We are excited to announce one of the biggest investments of Turkey with our partner FCA [Fiat Chrysler Automobiles]. Our investment for the production of the new models will show the success of Turkish engineers at a time when Koç Holding has been making the biggest organic investments of our history. The investments of Tofas will reach up to US$1.4 billion in the medium term with our three new models, as well as our new Doblo model in the pipeline."

The chairman added that the investment would help reduce Turkey's current-account deficit by boosting export figures.

The investment is aimed at replacing the Linea (200 programme) with programme 356, which will come in three different body styles: hatchback, sedan and station wagon.

Sedan production will begin next year, and according to IHS Automotive production forecasts, output of the three variants will reach 700,000 units cumulatively between 2015 and 2021.

                                                Strong reputation

Fiat's JV with Koc Holding has built a strong reputation for developing its own vehicles for sale under the Fiat brand. The automaker announced an investment of US$307 million last year in the development of its next-generation Doblo, saying that production would commence in the second half of 2014.

Furthermore, it unveiled plans to export the Doblo and other light commercial vehicle variants to North America. The company is expected to be boosted by the investment as new models will help it achieve a more balanced product portfolio of passenger cars and light commercial vehicles. This will also help the automaker increase its competitiveness in both the domestic and export markets.

Turkey has one of the biggest auto industries in Europe, although its automotive market has been one of the most volatile in the world as a result of the country's economic instability.

The automotive industry has become increasingly important in Turkey over the past decade as automakers have sought low-cost manufacturing near to Europe. The Turkish government has been eager for the automotive industry in the country to continue to develop as it attempts to turn it into an export hub.

Total vehicle production in Turkey was expected to hit a record 1.25 million units this year, according to the Automotive Manufacturers' Association in July.

In contrast, the country's vehicle market has been struggling and was down more than 16 per cent year-on-year in January-October 2014, despite a 15 per cent year-on-year surge in demand last month.

Thanks to its strategic geographical location, serving as a bridge between Asia and Europe, and its relatively cheap labour costs, global automakers are setting up production facilities in Turkey.

Vehicle exports account for 14 per cent of Turkey's overall shipments. The country exported 828,000 vehicles worth US$21.5 billion in 2013, with European markets accounting for 70 per cent of that total.

As European markets stabilise, automakers operating in Turkey are rolling out new models and expanding capacity to tap into the rising demand.

Toyota began producing a new version of its best-selling Corolla in Turkey last year, while automakers including Ford and Hyundai have rolled out, or plan to launch, new models in conjunction with their local JV partners this year and next.