Car ownership drifts beyond reach of millions of Turks

Bunyamin Celikkaya, a resident of Istanbul, has spent a year sifting through ads for a replacement for his 10-year-old car. His hunt seems to have become impossible amid the collapse of the Turkish lira that has fueled equally dizzying price hikes. The price of Celikkaya’s car has increased, but so has the price of the secondhand vehicles he would like to buy and the sum he needs to add to bridge the gap. “Car prices are rising by the day,” he said. “I am still waiting but am not really hopeful.” 

Vehicles over 10 years old like Celikkaya’s have come to account for 55% of used cars on sale in Turkey, according to the car consultancy firm EBS. Cars older than five years make up 80%. Yet market trends show all of them are becoming unaffordable for many ordinary Turks. 

Emre Ozpeynirci, a journalist who writes about the automotive sector, has found that 25% of the 13.1 million passenger cars in Turkey are 21 years old or older. “That is, 25% of cars are [technically] scrap. And the average age of cars is 13.2 years,” he told Al-Monitor.

According to inflation data from the Turkish Statistical Institute, the prices of gasoline and diesel vehicles rose by 6.4% and 12.1%, respectively, in November. Yet insiders dispute the figures, asserting that the price hikes have been much higher, stoked by the slump of the lira, which lost more than 25% of its value in November alone.

EBS director Erol Sahin told Al-Monitor, “Six out of 10 vehicles on the market are imported vehicles and most of them come from Europe, meaning that they enter the market with prices in euros. The prices of some vehicles have risen by 30% to 70% recently. The TUIK data paints a picture detached from reality.”

For new cars, the prices of only two models — a Fiat and a Hyundai — remained below 200,000 Turkish liras (about $14,500) as of Dec. 1, market data shows. Both were priced at about 194,000 liras ($14,100), a forbidding sum for most of the populace in Turkey, where nearly half of wage-earners are paid the minimum wage of 2,826 liras ($205) a month. Assuming that a minimum wage-earner could miraculously save 1,000 liras per month, the cheapest car would take 194 months — 16 years — of work to afford. The price of a Mercedes-Benz E, meanwhile, has hit a staggering 1.27 million liras ($92,200).

The soaring prices owe not only to the nosediving lira but also the exorbitant taxes that Ankara levies on automobiles — a 18% value-added tax (VAT) and a special consumption tax (SCT) that varies according to the vehicle’s base price and engine size. The total of taxes often exceeds the base price of the vehicle.

Under the most recent tax amendments in August, the lowest levies — a VAT of 18% plus a SCT of 45% — apply to cars with a base price of less than 92,000 liras and an engine cylinder volume smaller than 1600cc. In the upper tiers, the SCT rates range from 50% to 220%. A car with an engine in the 1600cc-2000cc range and a base price of 221,000 liras would end up with a price tag of nearly 600,000 liras, including a SCT of 287,000 liras and a VAT of 91,000 liras. For millions of consumers, such prices preclude car ownership or limit it drastically.

Data by the Automotive Distributors Associations shows that retail sales of passenger cars and light commercial vehicles totaled 60,216 in November and 58.3% of them were imported vehicles. The soaring foreign exchange rates have meant a sharp increase in the cost of imported vehicles, also raising their ratable value. As for domestically manufactured vehicles, producer prices have been pushed up by the rising costs of materials, including imported parts.

According to Ozpeynirci, “Only a couple of versions of a couple of models remain in the 50% SCT bracket today. Most cars are now in the 80% SCT bracket.” In a gloomy forecast for next year, he said, “If it goes on like this, the cheapest car in Turkey will have a price tag of at least 400,000 liras at the start of 2022.”

The soaring base prices and higher SCT rates, coupled with the economic uncertainty gripping the country, have caused a general contraction on the automotive market.

The Automotive Distributors Association reports that sales of passenger cars and light commercial vehicles declined by 40.1% to 56,746 in October from the same month in 2020. The TUIK data also points to a contraction. According to the institute, the number of all types of road motor vehicles registered in October decreased by 25% over 12 months and by 7.9% from September.

The Turkish government has put on a brave face, arguing that the cheapened currency will help boost exports, which, in turn, will bring in more foreign currency to ease the crunch. From Ankara’s perspective, exports are now vital for the Turkish economy.

The domestic market may be in turmoil, but Turkey’s automotive sector — home to the plants of major brands such as Renault, Fiat, Toyota and Hyundai — remains the country’s top exporter and ranks among the world’s top 15 automotive hubs. The sector’s exports totaled $25.5 billion in 2020, according to the Automotive Industry Exporters Association. 

This year’s exports have already outstripped last year’s figure, but not without caveats for down the road. Automotive exports were worth $26.4 billion in the first 11 months, a 16% increase from the same period last year. On a monthly basis, however, the exports declined sharply in September, October and November from the same months last year under the impact of the global chip shortage and contraction on the European market. 

At home, the prices of both new and secondhand cars continue to increase by the day. The government may hope that rising exports will relieve the country’s currency woes, but the shrinkage of the automotive market says the opposite. Could the government lower the SCT rates to revitalize the market? Such a prospect appears unlikely, experts say, given Ankara’s new strategy of boosting exports and discouraging imports in a bid to ease the country’s current account deficit and relieve the lira.