VW Postpones Decision on $1.4 Billion Turkey Car Plant

(Bloomberg) -- Volkswagen AG delayed a decision on a 1.3 billion-euro ($1.4 billion) auto factory in Turkey after the country’s military action in northern Syria prompted an international outcry.

The German carmaker established a Turkish unit in the western city of Manisa in early October, paving the way to begin producing cars in the country. The plant postponement may come as a blow to President Recep Tayyip Erdogan and to Turkey, which counts Germany as its largest trading partner.

“We’re closely monitoring the situation and are concerned about the current developments,” VW said Tuesday, adding that the decision to delay was made by the management board.

German Chancellor Angela Merkel called for an immediate end to Turkey’s military operation in northern Syria during a weekend phone call with Erdogan, reinforcing comments by European Union member states and the bloc’s foreign policy chief, Federica Mogherini. The EU, while condemning the offensive, has so far stopped short of imposing significant sanctions.

The plan to make 300,000 cars in Turkey, creating 5,000 jobs, would expand VW’s total number of factories worldwide to 123 and 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 because of high costs at its factories in Western Europe. VW also considered sites in Bulgaria, Serbia, Romania and North Africa.

This is a “huge blow if this does not happen,” said Tim Ash, a strategist at BlueBay Asset Management in London. It raises the question of whether Turkey is becoming too big a risk for for investors, he added.

Industrial giants Daimler AG, Siemens AG, Continental AG and Robert Bosch GmbH operate plants in Turkey, alongside other global manufacturers including Ford Motor Co. and Toyota Motor Corp.

Dogus Otomotiv, the Turkish distributor of VW vehicles, fell as much as 6.5% in Istanbul trading after the news, and was 0.8% lower at 6.59 liras at 11:37 a.m. Turkish time.

The U.S. government on Monday called on Turkey for “an immediate cease-fire” in Syria as it announced sanctions on three senior Turkish officials and sharply increased tariffs on steel in response to the military operation launched by Ankara last week.

“It’s important that Turkey brings the Syria operation to a close as soon as possible and works to tone down geopolitical noise,” said Ash. “Tit-for-tat sanctions now would be very unhelpful and just further inflame things and put more investors off.”

©2019 Bloomberg L.P.

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