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5 Feb 19

New LCV law to provide 5% boost to Turkish lease industry

Turkey’s lifting of restrictions on LCV leasing will boost the country’s economy – including its leasing industry. “This could have been a flat year. But now, we expect 5% growth”, says Inan Ekici. 

As President of Tokkder, the Turkish vehicle leasing and rental association and as Deputy General Manager of Otokoç Otomotiv, one of Turkey’s foremost automotive enterprises, Mr Ekici was intimately involved with lobbying to change the restrictive law. 

Costly undertaking
First introduced in 2009, it stipulated that light commercial vehicles (LCVs) could not be acquired via operational leasing. This allowed the authorities to keep track of corporate rolling stock, for fiscal and other purposes. But since purchasing LCVs is a costly undertaking for most Turkish SMEs, it also put a damper on economic development – including that of the Turkish leasing industry. 

“That’s why Tokkder over the past decade has been lobbying for a change. Eventually, we managed to bring together stakeholders both from the automotive industry and from various government departments – including the treasury, trade and transport departments, and the president’s office,” says Mr Ekici. At the end of last year, those efforts finally paid off. But it’s not a 100% success yet, he says. 

Good start
“There are still restrictions. I’d say we’re 70-75% there. In short: if you transport your own goods, you can get an LCV under operational leasing. If you transport goods for someone else, you can’t. So we still have some work to do before we achieve total success. But it’s a good start.”

Before the restrictions on LCV leasing came into force in 2009, there were about 25,000 LCVs under leasing contract in Turkey. That figure has been reduced to virtually zero. But it can now bounce back up, Mr Ekici trusts: “The market potential is huge. Without the 2009 law, the Turkish leasing industry would have about 100,000 LCVs under contract by now.” 

Economic conditions
“We expect strong growth – up to 20% a year. But it depends on the economic conditions, which are not excellent at the moment: Turkish companies have a liquidity problem, and interest rates are too high. Without those issues, I’d predict up to 30,000 LCVs under contract by the end of this year. But as it is, I foresee up to 15,000 LCVs under operational leasing before 2019 is over.”

Because it’s not just SMEs that would benefit from the new measure, also larger companies. “Not just a small independent flower shop, also a grocery chain with multiple stores. The criterium is: Are they transporting their own goods? That important distinction will take some explaining to the companies – and to our own staff.”

90,000 units
The annual market in Turkey for LCVs up to 3.5 tons is around 90,000 units. The new law, which has been in operation since 1 January, could therefore have a significant impact on the Turkish economy. “I believe that the potential benefit for the wider economy was one of the motivations for the government to review the law”, says Mr Ekici. 

But under present circumstances, it will be a hard sell nonetheless, he believes: “Comparing this January with the same month last year, commercial-vehicle sales declined by 56%. Interest rates are currently around 25%. As soon as they drop below 20%, it will become easier for us to convince potential customers to acquire their LCVs via operational leasing.”

Tough time
The Turkish vehicle lease industry as a whole had a tough time of late. Total volume declined by about 12% from around 365,000 units at the end of 2017 to around 325,000 units at the end of last year. A sharp contrast with the average growth rate of around 14% over the previous decade. 

“For 2019, we projected to end at around the same volume as last year. But thanks to the boost provided by the new LCV law, we may end up around 330,000 units, or 5% better than last year,” Mr Ekici concludes. 

Image: Sunrise over Ortakoy Mosque in Istanbul, with Bosphorus Bridge in the background.

Authored by: Frank Jacobs