Europeans Sound Alarm for Iran's Carmakers

Europeans Sound Alarm for Iran's Carmakers
Europeans Sound Alarm for Iran's Carmakers

With the entry of European carmakers in Iran's auto market, the alarm has been sounded for Iran's leading auto giants—Iran Khodro, Saipa and Pars Khodro.

Iran and the six world powers finalized a comprehensive nuclear deal, dubbed the Joint Comprehensive Plan of Action on July 14. Following the JCPOA, several leading vehicle companies, namely PSA Peugeot Citroen, Volvo and Daimler-Benz, have shown keen interest to resume or start operation in Iran.

This would mean that Iran's car industry, the second largest wealth creator after oil, will be welcoming a new range of models in the near future, which can pose a potential threat to local car manufacturers, ISNA reported.

Iranian buyers have long lost their faith in locally produced cars due to their subpar quality. Customers have long complained about technical problems in domestically produced cars.

Ali Khaksari, a specialist, says that for a very long time now, the duopoly of IKCO and Saipa has set high prices with no regard for their customers' demands or needs.

"Policymakers need to get this message: Sanctioning customers is no longer a viable solution. The duopoly needs to end," he said.

Another auto industry specialist, Farbod Zaveh, bluntly said, "Customers are not interested in IKCO or Saipa. If the companies do not make major changes, they will lose out to the Europeans."

In addition to the industry specialists, in-house auto writer, Morteza Raad, believes bad tidings are ahead for the domestic manufacturers due to their slowness in upgrading their lineup.

Auto experts are not the only ones to criticize the status quo. Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh recently said, "It is unacceptable that locally produced cars break down and need repairs before even completing 10,000 kilometers."

The minister noted that demand is on the rise but automakers have failed to improve production quality, which has made buyers dissatisfied.

  The Germans Are Coming

Headed by Germany's Vice Chancellor and Economy Minister Sigmar Gabriel, a business delegation visited Tehran last week. Representatives from German auto giants Daimler-Mercedes and Volkswagen have already met with Iranian automotive officials to expand business ties.  Italian and French delegations are also coming soon.

The new changes are taking place on the back of a lackluster market, at least for the local manufacturers: Iran's auto industry has been sluggish, the models produced are insipid and customers are largely dissatisfied with both price and quality.

This should serve as a wakeup call for both Saipa and IKCO. The two companies will lose a large share of the market to European competitors if they do not improve production quality, reduce the unreasonably high prices and get their after-sales act together.

The companies have already been hit hard by the "Chinese Experience". Over the past four years, the Iranian market has become saturated with several models of Chinese cars, including Brilliance, Great Wall and Lifan among others.

Given the poor quality of local cars, Iranian buyers quickly welcomed the Chinese models. Even though Chinese models do not have a large share in the global market, they gained a foothold in Iran.  

All may not be lost though, as Saipa recently signed a contract to produce Brilliance cars on their own premises, largely pointing to a change in tactic, to now mainly focus on CKD rather than in-house R&D.

The duopoly does not have much longer to change ways, though it's all getting down to "improve or vanish".