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Cablegate: Ford Otosan,S Successful U.S. - Turkish Trade

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TAGS: ECON EINV ETRD EFIN PGOV PREL TU
SUBJECT: FORD OTOSAN,S SUCCESSFUL U.S. - TURKISH TRADE
VENTURE

REF: ANKARA 145

1. (SBU) Summary: The Ambassador,s recent visit to a Ford
Otosan plant near Istanbul showcased the Ford-Koc
joint-venture,s production of the Transit Connect, a U.S.
market export that was recently named &2010 Truck of the
Year8. Otosan is Turkey,s largest industrial exporter and
one of its biggest contributors of tax revenue. Otosan,s
plants feature many of Turkey,s competitive advantages )
production efficiency, reliable labor force, good
transportation links ) but possible expansion plans hinge in
part on whether the GOT can meet Ford,s expectations on
incentives. Otosan,s operations are a shining success story
in a bilateral economic relationship that remains modest
relative to the size of our economies. End Summary.

FORD-KOC JOINT VENTURE PLANTS IN KOCAELI, GEBZE

2. (SBU) On January 26, Ambassador, Istanbul Consul General,
and Commercial Officer visited the Ford Otosan factory in the
northeastern city of Kocaeli, about 100 miles from Istanbul.
Ford Otosan is a joint-venture between the Turkish Koc Group
and Ford. The Kocaeli plant is a state of the art, highly
robotized facility that opened in 2001. Since then, it has
produced full-sized Transit vans and the compact Transit
Connect for 25 markets. Annual production passed 300,000
units before the global financial crisis reduced production
to 180,000 units. With 80 percent of those vehicles leaving
Turkey, it is the nation,s largest industrial exporter and
one of its biggest sources of tax revenue. Ford Otosan also
has a plant in the city of Gebze near Istanbul. The
relationship between Ford and Koc, Turkey,s largest holding
company, started in 1928 with a dealership arrangement which
has now developed into a joint venture with 41 percent Ford
equity, 41 percent Koc equity, and 18 percent publically held
common stock. Ford Otosan employs over 7,600 workers and has
registered over $4.8 billion USD in sales. Profits are shared
between Ford and the Koc Group. During the visit, U.S.
Mission officials were given a tour of the production
facility that assembles the Transit and Transit Connect
vehicles. The Transit Connect is the first Turkish-made
vehicle to be ever exported to the U.S. Turkish Prime
Minister Erdogan drove the first vehicle into the ship bound
for U.S. markets in a ceremony last May.

U.S. &TRUCK OF THE YEAR8 MADE IN TURKEY

3. (SBU) Ford started exporting the Transit Connect to the
U.S. in May 2009 and sent 30,000 of the vehicles there by the
end of 2009, generating $300 million in sales. In 2009 the
plant also produced 72,000 Transits and an additional 27,000
Transit Connects for European and domestic markets. The
Transit Connect received the &2010 Truck of the Year8 award
in January at the Detroit Motor Show. The vehicle fills a
previously unfilled niche in the U.S. market for a fuel
efficient compact van created by a shift in commercial
buyer,s behavior favoring smaller, more fuel-efficient
vehicles.

WHY PRODUCE IN TURKEY?

4. (SBU) According to plant manager Michael Flewitt, Ford
chose to produce the U.S. market,s Transit Connect in Turkey
because of the Kocaeli plant,s award-winning efficiency,
productive workers, and location close to sea transportation
links. The cost of shipping the vehicles to Baltimore adds
only $300 to its price. Since the vehicle is actually
considered a passenger vehicle under U.S. customs tariff
rates, it only faces a 2.5 percent customs duty versus a 25
percent duty for imported trucks.

POSSIBLE BUMPS IN THE ROAD

5. (SBU) Despite the success of the Ford Otosan Transit
Connect operations, possible pot holes lie ahead. In order to
meet Ford,s global increase in demand, Flewitt advised, Ford
is considering doubling its Kocaeli plant by building another
factory on a green field plot next to the existing plant.
However, Ford is also evaluating sites in other countries
whose governments may provide additional incentives or cost
sharing in the preparation of the site. Ford officials have
expressed frustration that the GOT has not been forthcoming

with an incentive package attractive enough to encourage Ford
to proceed with the construction of another plant in Turkey.
Ford may also move production of Transit Connect vehicles
intended for the U.S. market to the U.S. if production is
expected to surpass 150,000 units. Such volume makes it more
profitable to produce the vehicle in the target market.

6. (SBU) Comment: Ford,s production of durable, high value
goods in Turkey for U.S. and European markets stands as a
showcase success in the bilateral economic relationship. It
demonstrates that Turkey can offer a sturdy export platform
for U.S. investment; however, no template exists for success
in such activities and profitable U.S. investments in Turkey
are often marked by unique circumstances. In Ford,s case,
success was built on a long relationship with the Koc group,
a powerful industrial partner, and encouraged by Turkey,s
proximity to European markets. Other U.S. companies have
developed profitable production and trade operations in
Turkey as well, but psychological and practical impediments
continue to keep the bilateral economic relationship smaller
than expected for the world,s largest and 16th largest
economies ) a central challenge for upcoming engagements
under the Framework for Strategic Economic and Commercial
Cooperation (FSECC).

7. (SBU) Another USG task in FSECC engagements will be to
highlight the pivotal contributions U.S. investment like
Ford,s makes to the Turkish economy ) contributions that
are often underappreciated by a GOT that obsesses about
Turkey,s &unfavorable8 balance of trade with the
U.S.(reftel). In Ford,s case, for example, the employment,
domestic consumption, tax revenue, and exports to European
markets generated by its investment are not credited to &the
U.S. account8 but yield substantial dividends to the Turkish
economy. End Comment.

WIENER

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