Turkish Market Round-up

By Ercüment Polat, Marketing Director, AYGAZ

Turkey is an interesting country from many aspects. One of the surprising facts is that its car park is growing more swiftly than many other countries that surpass Turkey in wealth-related figures like GDP.

In addition to this, there is another challenging fact which makes this success harder to achieve; Turkey is one of the leading countries regarding the high amount of excise duty rates on new car purchases and fuels. In Turkey, one should pay not only 18% VAT when buying a brand new car, but also a significant amount of excise duty according to the engine capacity; 37% up to 1.600cc, 80% between 1.600 and 2.000 cc and 130% 2.000+ cc. The table below depicts Turkey’s situation vividly.

 Country VAT(%) Excise duty  Austria  20%  Up to 16%  Denmark  25%  105%-180%  England  20%  0  France  19,6  200-2.200 Euro  Germany  19%  0  Ireland  21%  14%-36%  Spain  18%  4,75%-14,75%  Turkey  18%  37%-80%-130%   Figure 1 – Vehicle tax rates

Last but not least, Turkish consumers have a huge burden on their shoulders regarding fuel prices. Fuel economy affects the consumer as much as the cost of the car inevitably. As we can see from the figures below, a car owner has to pay more than twice the cost of the fuel on average.

 AUTOGAS Pump price (€/lt) TAX (€/lt) Tax ratio  Turkey  0,99  0,44  45%  Lithuania  0,65  0,28  43%  United Kingdom  0,86  0,35  40%  Poland  0,57  0,22  39%  Italy  0,71  0,25  35%  Bulgaria  0,67  0,21  31%  Germany  0,76  0,22  29%  Netherlands  0,79  0,21  27%  France  0,73  0,18  25% GASOLINETAX (€/lt)Tax ratio  Turkey  1,14  65%  United Kingdom  0,91  59%  Netherlands  0,99  59%  Germany  0,92  59%  France  0,90  57%  Italy  0,88  55%  Poland  0,61  52%  Bulgaria  0,62  49%  Lithuania  0,64  49%  DIESEL TAX (€/lt) Tax ratio  United Kingdom  0,91  57%  Turkey  0,84  55%  Germany  0,73  52%  France  0,71  51%  Italy  0,71  49%  Bulgaria  0,60  48%  Netherlands  0,65  48%  Poland  0,52  45%  Lithuania  0,48  40% Fuel tax rates

Despite these challenging facts, the car park, especially the LPG car park is growing in an outstanding manner. As you might remember from my previous article, the Turkish autogas market has been growing steadily since 2004 and has become the second largest Autogas market in the world. The LPG car park has exceeded 3 million and almost 40% of private cars are nowadays running on Autogas. Moreover, 300.000 gasoline-powered cars are expected to be converted over the following year.

You may wonder how such huge growth happens in these circumstances. It is obvious that this demand is truly related to the fuel economy. As a developing country, with an increasing population, Turkey has the potential to enlarge its car park. The difference between Turkey and the other developed countries regarding car ownership rate clearly reveals it.

  Passenger cars per 1.000 inhabitants  Italy*  603  Germany*  551  France*  490  United Kingdom*  463  USA  450  Japan  440  South Korea  220  Turkey  104 Car ownership rates

As the population increases, more people need to buy a new car whether the tax rate is high or not. What they can do is that they decide on a car according to its initial price and its fuel economy.

Although diesel is the cheapest fuel among those three alternatives in Turkey, higher cost of diesel technology forces many consumers to consider their second alternative, LPG. Although diesel engines are getting more efficient and silent nowadays, still 40% of the new private cars carry gasoline engines. Gasoline cars are primarily converted into LPG, the experts are still working on converting diesel run cars into gasoline run cars. Gasoline cars are the vehicles that have real potential to be converted into LP gas. At this point, car manufacturers’ attitudes toward Autogas, affects the market growth extremely.

Nowadays, 12 car manufacturers, including the big players like Fiat, Hyundai and Dacia offer LPG option to their customers in Turkey. Two dominant players, Renault and Honda, are about to join the list at the beginning of 2012. Seeing most of the big players on stage pleases us deeply because results of a state survey that more than 50% of the people first decide on the brand of the car that they are going to buy, and then they elaborate on the engine options. So this fact tells us that most of the people will have the chance to choose LPG option when they are buying a new car in 2012.   Another survey showed us that 15% of 3 million LPG car owners have decided to convert their brand new cars just after buying them although they know that this action voids their car warranty. As more car manufacturers offer the LPG option, more people will have the desire to buy without voiding the warranty.

On top of this, what tempts more people is that factory-fitted LPG cars are introduced to the market. Nowadays, only Dacia prefers to produce its LPG cars in the factory but Renault’s entry to the market with its factory-fitted cars will definitely change the dynamics of the market and propel the LPG car sales in the future.

To sum up, Turkey’s LPG car park is growing steadily despite the tax burden on the car and fuel prices. Comparing the pros and cons, consumers decide to use LPG more and more. As more car manufacturers see  the truth, more of them will offer LPG option to their customers, thus the market will grow faster. We expect that other car manufacturers will join the list soon and till that time, we will be enjoying this paradigm shift.

Ercüment can be contacted by email: ercument.polat@aygaz.com.tr