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Volkswagen Turkey Unit Paves Way for $1.4 Billion Plant

Volkswagen Establishes Unit to Manufacture Cars in Turkey

(Bloomberg) -- Volkswagen AG established a Turkish unit in the western city of Manisa, paving the way to start making cars in the country with an investment of 1.3 billion euros ($1.4 billion).

The planned unit would have an annual production capacity of around 300,000 units and focus mostly on export markets, according to a senior Turkish official with direct knowledge.

The German carmaker’s official notice published in the trade registry gazette on Wednesday brings to a conclusion its long-reported deliberations for a new car factory in Turkey, which will cater to the domestic market while serving as an export hub for markets in the Middle East and Russia. It will create around 5,000 jobs, according to the Turkish official, who asked for anonymity while discussing plans before they are made public. Volkswagen declined to comment.

Volkswagen Turkey Otomotiv Sanayi ve Ticaret AS, as the unit is officially registered, will design, manufacture and assemble motor vehicles, according to the trade registry notice. The company has a capital of 943.5 million liras ($164 million).

The site, which would expand VW’s total number of factories worldwide to 123, will bundle production of the VW Passat and Skoda Superb mid-sized sedans in a move to create a bridgehead to grow sales across Eastern Europe and the Middle East. The world’s biggest carmaker has struggled to compete with Asian rivals in those markets due to high manufacturing cost at its factories in Western Europe.

Beyond the strategic rationale for VW, the project also marks a win for Turkey’s government led by President Recep Tayyip Erdogan in attracting foreign investment despite persistent economic, political and military tensions.

Sales of cars and light commercial vehicles in Turkey have slumped 39% in the first nine months of the year from the same period in 2018, following a steep downturn for the economy, according to data published Wednesday by the Automotive Distributors’ Association.

VW also considered sites in Bulgaria, Serbia, Romania and Northern Africa. Other global manufacturers with an industrial footprint in Turkey include Daimler AG, Ford Motor Co. and Toyota Motor Corp.

Shares of Dogus Otomotiv, the distributor of Volkswagen vehicles in Turkey, rose as much as 17% before trading 14% higher at 9.26 liras as of 3:35 p.m. in Istanbul. The stock is up almost 130% since Frankfurter Allgemeine Zeitung reported in June that Turkey was among the two locations shortlisted by VW. The optimism that Dogus Oto would benefit from a local VW producer, suggesting lower prices than for import vehicles, fueled gains in the shares.

--With assistance from Kerim Karakaya.

To contact the reporters on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net;Tugce Ozsoy in Istanbul at tozsoy1@bloomberg.net;Christoph Rauwald in Frankfurt at crauwald@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, ;Jenny Paris at jparis20@bloomberg.net, Taylan Bilgic, Onur Ant

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