Tax cuts have already provided a short-term boost to the industry, but an extension of these is remote as Turkey deals with the global financial crisis that has ravaged the industry worldwide and hit that nation's economy.
Now analysts are predicting a domestic auto sector contraction of 20-30 percent in 2009, to about $9 billion in size, with exports falling 25 percent to about $18 billion. Domestic growth in 2010 is seen at just 10-15 percent, while exports were seen rising 10 percent.
Turkey's auto industry has been a key pillar of the post-2001 boom, attracting foreign producers, leading a surge in exports and raising hopes it could become a regional automotive production hub. That buoyant trend collapsed in the first quarter, vehicle output tumbling 59 percent on the year and inspiring Ankara to cut the special consumption tax on vehicles of under 1,600cc to 18 percent, from 37 percent, for the three months to mid June. As a result, automotive production in March rose 31 percent from a month earlier with the capacity utilization ratio rising to 47 percent, from 37 percent.
The tax breaks have boosted automotive shares -- Tofaş by a third. Industry representatives are also calling for an incentive to scrap old vehicles. However, sources in Ankara are tight lipped about the future of the auto industry tax incentives after mid June, when they expire, having already introduced a raft of other tax cuts to boost broader economic activity.
"I think the government will wait to see what happens after the tax reduction expires," EFG Istanbul analyst Alper Paksoy told Reuters, in line with other analysts' views.
TEB Investment analyst Didem Özatalar said the failure of the government to provide further incentives, may prompt a temporary sell-off in the shares, which have shown signs of life after plunging last year.
Oyak Securities analyst Cemal Demirtaş said the main risk to the March growth was "a sudden return to the old tax rates".
Both Demirtaş and Paksoy say the best way of sustaining the upward turn in sales would be to extend the tax cuts until year's end. Phasing in a tax rate lower than the original levels was another option, Demirtaş said.
Tofaş, a venture of Fiat and Turkey's Koç Holding, has surged 70 percent from mid-March to as high as 2.15 lira last week. It has since fallen to 1.97 because of the uncertainty over its second-half prospects.
Shares in Koç-Ford venture Ford Otosan rose a third to 5.1 lira over the same period.
"My top picks have performed very well in the last couple of months. I still like Tofaş and see more way to go for the shares as it is set to launch new versions," said Özatalar.
Analysts and industry representatives also called on the government for scrap incentives, to trade-in old cars for new models, to kick-start the industry's domestic growth potential.
The level of car ownership in Turkey is less than 100 per thousand people, against 600 in Western Europe. "There is a fast-growing domestic market as well once you look beyond the crisis," Credit Suisse analyst Stuart Pearson said. A rejuvenation will depend heavily on developments in key European markets.