Mercedes Pays IKCO €42m for Losses

Mercedes Pays IKCO €42m for Losses
Mercedes Pays IKCO €42m for Losses

Germany’s Mercedes-Benz paid Iran Khodro, Iran's largest company, on Friday a piecemeal €42 million in compensation for leaving Iran in the heyday of western sanctions.

The reparation comes as Mercedes, owned by Daimler, seeks to return to Iran in anticipation of sanctions being lifted after last month’s conclusion of nuclear talks between Tehran and the West, Mehr News Agency reported.

Mercedes-Benz, as one of Iran Khodro’s oldest trade partners, suspended all activities in Iran following US threats of reprisals for doing business with the Islamic Republic. Consequently, Iran Khodro’s production of commercial and semi-heavy vehicles suffered losses.

Daimler suspended business operations in Iran in 2010 amid rising tensions. The moves included giving up a 30% stake in a diesel-engine joint venture with Iran Khodro and withdrawing plans to export three-axle trucks. It is one of many European carmakers considering a return, lured by a market that could average 1.7 million vehicles in annual sales in the long run, according to estimates from IHS Automotive.

“Now that Mercedes-Benz intends to resume activities in Iran, Iran Khodro's executives demanded €42 million from the company in compensation,” the Persian daily Khorasan reported.

The nuclear deal between Iran six major countries has paved way for a return of foreign investments and payments of debts owed by foreign companies to the Islamic Republic.

Following the nuclear deal, Mercedes-Benz entered into talks with Iran Khodro Diesel Company to resume manufacturing its heavy trucks in Iran.

In July, Iran Khodro Managing Director Hashem Yekezare said, “Iran Khodro and Mercedes-Benz will sign a deal soon for production of cars and commercial vehicles.”

He also added that Mercedes-Benz will reopen its office in Iran in the next two or three months.

Yekezare said under the agreement reached with Mercedes-Benz, a five-year contract will be signed soon, based on which Setareh Iran as the importer and Top Khodro Company as manufacturer will start distribution of Mercedes-Benz cars in Iran.

The German company is among several other European automakers eying Iran’s car market, being billed as the Middle East’s largest.

Top executives of Mercedes-Benz, including the vice president of the Daimler Company, were part of a German delegation that visited Iran earlier this month, raising hopes that the automaker is going to return with a bang in the Iranian market. German Economy Minister Sigmar Gabriel led the 60-member delegation, including executives of Siemens, Linde, VW, Daimler and GIZ.

Deutsche Bank analysts said in a July 16 report that should German exports return to the pre-sanctions' levels of a decade ago, it could mean as much as an additional €4.5 billion ($4.9 billion) in revenue for the country’s companies.

"Iran Khodro has also held negotiations with other German automaker, Volkswagen, on production of cars and investment in Iran, as well as transfer of technology and exports of products," he added.

Leading French carmakers, Peugeot and Renault, are also primed for resuming business in Iran.

According to the daily, Iran Khodro was seeking compensation from Peugeot as well for pulling out of business with Iran’s biggest carmaker in 2012.

Iran Khodro accounted for about 13% of the French company’s annual sales when it withdrew, idling a large assembly line in the country, according to Iranian officials.

“Peugeot must know that it has to account for its past behavior,” Yekezare said last month.

Peugeot has not yet made an announcement, but some analysts suggest it could dwarf the German compensation by the order of five.