Auto Market Future

Auto Market Future
Auto Market Future

I ranian car enthusiasts interested in the outcome of the P5+1 negotiations in Geneva are hoping that Foreign Minister, Mohammad Javad Zarif, will come home with a bounty of treasure, one of which is the prospects of thousands of new cars hitting the roads in the coming months.  Knowing this, it is worth mentioning that if a deal does go through, one thing is for certain, the automotive sector will never be the same again, and unfortunately it does not mean prices are going to tumbling down either – immediately.

The nuclear deal will have many far reaching consequences, some of which will not be foreseen. One of which is likely, and looks unfortunate for the national car makers is the jump interest from foreign companies wanting to sell their vehicles here legally.

This will have a knock on effect to the new and second-hand vehicle market over the next few years. But those looking for big reductions in the prices of new and second hand cars are likely to be disappointed in the slowness of price reductions.

Moreover, the staggered pace of re-investment into the local auto market is likely to see prices of current vehicles stocks remaining stubbornly high in the short to medium term.

In the long term, after 2020 onwards, the Iranian auto market is likely to be radically different from where it stands today.

But I am not writing about the far future, as many problems can occur in the period in-between, and I don’t want to jinx any progress the country as made thus far.

In the near term, the end of 2015 to 2016, Iran is likely to see renewed interest in the automotive sector from foreign auto makers. Deals like Iran Khodro Diesel’s contract with Daimler-Benz are one of the first indicators that the luxury vehicle makers see Iran as a lucrative market.

PSA Peugeot Citroen and Renault have also begun their shift back to Iran; Renault not wanting to let their home-country counterpart get the upper hand for a second time, is already obvious with their announcement of vehicles like the Clio, Captur and Koleos models. The Renault (Dacia) Sandero is now rolling off the production lines in Iran Khodro with a small number driving around the capital’s streets.

For Peugeot, the once dominant player in Iran, their reentry into the market continues to receive a tepid response from locals. Not happy about letting Renault get in pole position, PSA has begun operations to bring in a new generation of models for Iranian buyers. First out of the factory will be the emerging markets favorite – the Peugeot 301 sedan model. Peugeot stated the model will sit well with car buyers in Iran due to its “technological offering” and price point.

Chinese car makers are not one to be left behind, and Brilliance Auto’s recent contract to build complete knock down kits with Saipa is testament to these ambitions. The H320 and H330 market models now go head to head with Peugeot’s models which have long been favored vehicles in Iran.

By 2016, we should expect to see many of these previously mentioned models on the roads, other manufactures like VW’s Skoda Automotiv may also be teaming up with local manufacturers. Who the company may team up with remains to be seen as both Iran Khodro and Saipa, the duopoly which control 90% of the market have not uttered a word about a possible VW contract since November last year.

If the nuclear negotiations end next week, we can expect many more automotive companies coming out of the woodwork – these companies are fearful of the US’ Office Foreign Assets Control reach in regards to being stung with punitive sanctions. This situation has occurred in part due to PSA Peugeot Citroen’s pullout and fear of dealing with their former partner over in 2013-14.

Other brands which could make a move into Iran, are the likes of the Russians and Indians. AvtoVaz of Moscow, another national producer similar to IKCO, has repeatedly stated their willingness to create a joint venture with Iran’s auto companies. Like the western European brands, the Russians are also likely waiting on the outcome of negotiations before they say publicly if they want to enter the market.

Iran and Russia continue to have a growing relationship, partly due to Russia now being in the “sanctions club”, joint rial-ruble financial paths are being opened as we speak and transactions between Iran and the Russian Federation continue to grow – Russia even announced a new direct flight between their Caspian sea city of Astrakhan and Iran’s northern city of Rasht last week.

India’s Tata Group, the largest in that country, has previously shown an interest in producing and exporting vehicles to Iran. Back in 2004, the Indian conglomerate discussed a JV with Iran Khodro to produce 20,000-30,000 cars in Iran. Tata is also believed to have sent over an exploratory group from Mumbai to discuss the project and look at the feasibility of the project.

The India connection could become one of Iran’s more profitable by 2016, primarily due to India’s long term lease of part of Chabahar port on the southern edge of Iran. This tax-free gateway has been touted as Iran’s  third “auto manufacturing hub” but nothing has happened since the area got the label. Tata may actually be interested in using the Free Trade Zone as a large manufacturing base, though it seems unlikely that they are going  to admit anything soon.