Auto companies driving fast, riskily in credit lane

ISTANBUL- Hürriyet Daily News

This file photo shows models posing in front of brand new cars during an automobile show in central Istanbul. Recent boost in automotive credits might cause the government’s targets for credit growth rate to fail, according to economist Nurhan Toğuç.

A recent hike in car loan campaigns in Turkey increases the risk of dangerous credit growth, fueling the country’s ever-widening trade gap, several economists warn.

“Turkey will not be able to meet its 25 percent credit growth target in the second half of the year,” said Nurhan Toğuç, chief economist of Ata Invest based in Istanbul.

Automotive companies and distributors have recently started to offer packages alleviating a recently increased special consumption tax (SCT) on motor vehicles.

“These offers, discounts and credits might cause the government’s targets for credit growth rate to reach beyond expectations,” Toğuç told Hürriyet Daily News in an interview yesterday.

Turkey’s Central Bank’s bid to slow down the credit growth expansion is not efficient since companies continue to offer attractive discounts and partial payment of the SCT in joint campaigns with lenders to reach sales targets for the yearend, she said.

Bank’s efforts not enough
“Unfortunately the sole measures taken by the Turkish Central Bank are not efficient,” she said, adding that Turkey’s Banking Regulation and Supervision Agency (BBDK) should also control the lender’s consumer credits. “I doubt whether the government will be able to meet its 20 percent credit growth expansion target for next year.” The government had increased special taxes on motor vehicles in October in order to slow down car imports, said Emre Alkin, an Istanbul-based economist. However, the tax hike could not be the sole instrument to solve the country’s trade deficit problem, Alkin told the Daily News yesterday.

The tax rate on motor vehicles with engine volumes higher than 2,000 cubic cm was increased from 84 to 130 percent and resulted in a 25 percent increase on Oct. 13. The rate on cars with engine volumes of between 1,600 and 2,000 cubic cm was also increased by 12.5 percent.

The Turkish automotive industry is expected to exceed last year’s sales record of 793,000 as it has already hit 735,033 in the first 11 months, according to data by the Automotive Manufacturers’ Association (OSD).

“We should also bear in mind that the attractive discount packages boosting car sales will also widen the country’s trade deficit eventually,” Alkin said. Automotive finance credits make up nearly 7 percent of the consumer credit, he said. “Turkey’s import bill is piling up and so are the concerns about the trade deficit.”

Turkey’s 12 month cumulative trade deficit has reached $78.6 billion, or about 10 percent of the gross domestic product, he said, adding that the government should stick to its target of curbing the country’s peaking imports. “The import of motor vehicles will increase this month, further widening the trade deficit,” he said.

Recently Peugeot launched a yearend package for sales on credit for 18 months, while Citroen introduced the same package for 15 months. Honda recently announced the company covers 50 percent of the special consumption taxes on all its cars with engine volumes higher than 2,000 cubic cm. Volkswagen also fixed the exchange rate for the yearend sales and offered a discount package for 4,000 Turkish Liras for some models.

“Financing the current account deficit through hot money is inevitable for Turkey,” Selim Somçağ, an Istanbul-based economist, said yesterday. Turkey’s economic administration board should focus on the wider picture as the country’s imports have reached an “unmanageable level,” raising concern in the midst of the eurozone crisis, he said.