VW puts on hold plan for €1 bln car factory in Turkey over Syria incursion

Volkswagen has postponed the decision on opening a new car factory in Turkey against the background of the Turkish military offensive in Syria. “The final decision for the new plant was postponed by the Board of Management of Volkswagen AG,” a company spokesman said on Tuesday (15 October), confirming media reports.

Last week, Turkey launched a military offensive against the Kurdish militia YPG in the Syrian border region. On Monday, Turkish President Recep Tayyip Erdoğan showed his determination to continue the operation, despite international criticism, until “the final victory is won”.

Meanwhile, US President Donald Trump announced sanctions against Turkey, the termination of trade talks and the increase of customs duties on Turkish steel.

Sources in the VW group’s management say the Turkish military operation has changed the situation “fundamentally”.

Earlier this year, VW announced its intention to build a 1.4 billion-euro plant in Southeastern Europe or Turkey. The competitors for the investment were Turkey, Bulgaria, Serbia and Romania. In the end, only Bulgaria and Turkey remained in the game, and the Germans ultimately decided to invest near the Turkish city of Izmir.

Three weeks ago, the German company registered a carmaker company in Turkey with a capital of more than $ 100 million, as a sign that the final decision had been made.

The reasons VW to chose Turkey are many and some are controversial.

The Izmir metropolis has a population of 4.3 million people. The average wage in Turkey is lower than in the surrounding European countries, but on the other hand, the country has enough skilled labor, quick access to a large port and excellent roads.

Also, President Erdoğan has offered the German company generous state aid, which includes even a guaranteed purchase of part of the plant’s output – up to 40,000 cars a year for the needs of the country’s administration. [More]

Plan B?

The freezing of plans to build a factory in Turkey does not mean the company will return to its second option – Bulgaria. Authorities in Sofia offer low taxes and flag the EU membership as an advantage, but it is precisely because of this that the country cannot provide direct state aid to Volkswagen.

Sources in the Bulgarian capital acknowledge that the German company most likely never had any hesitation in making its investment in Turkey, and Sofia was kept in the race as leverage to obtain a better deal from Erdoğan.

Sofia’s reaction

A day ago, former Bulgarian President Rossen Plevneliev announced that the country would file a complaint to the European Commission about the failure by VW and Turkey to comply with the rules of the common European market. Plevneliev is chairman of the Bulgarian Automobile Cluster, which was part of the talks with Volkswagen.

“Turkey is not a member of the EU, but a member of the common market and the customs union. Turkey must adhere to the rules of the common market, but it does not. I expect that the Volkswagen deal will become for many years to come a showcase of non-compliance with common market rules,” Plevneliev said.

“And from this deal, there will be consequences both for VW and for Turkey. The obvious failure to comply with the rules of the common market should lead to sanctions”, he added.

According to him, the carmaker was deliberately taking advantage of Erdoğan’s generous offer, knowing full well that this does not comply with market rules. Plevneliev said that Erdoğan had promised VW to buy 100,000 passenger cars from the new plant for the needs of the state and its Justice and Development Party.

Trump’s sanctions

The Turkish economy is in bad shape, the war effort costs a lot, and the loss of a major investment project is really bad news for Ankara.

Turkey’s operation in northern Syria has drawn sharp criticism from leading EU countries fearing a new wave of refugees. US President €Trump is preparing to impose punitive duties on Turkey as Erdoğan’s army attacks Syrian Kurds, who were a key US ally against the Islamic State. The sanctions will further weaken the volatile Turkish lira currency.

Trump has warned that he can “swiftly destroy” Turkey’s economy. Washington has already announced that it will suspend talks on a free trade agreement with Ankara covering the exchange worth $100 billion and will cease cooperation with Turkey’s defence and energy agencies.

[Edited by Zoran Radosavljevic]

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