Iran Khodro, the Middle East's largest and oldest carmaker, and French multinational carmaker, PSA Peugeot Citroen, have signed a preliminary agreement for launching a joint venture to produce cars, an official with Iran’s automobile industry said on Sunday.
The unnamed Iranian official said Iran Khodro and Peugeot have signed an agreement worth €500 million ($545 million) to jointly produce cars inside Iran.
According to the terms of the deal, each side will equally invest €250 million in the project, Tasnim News Agency reported. The source noted that the Peugeot 2008 crossover, 208 supermini (2nd edition) and 301 sedan will be manufactured inside Iran under the 50-50 joint venture, a significant number of which will be exported to regional markets as per previous iterations of the deal.
Noting that the number of models produced in Iran will reach five in the near future, the official added that the agreement is likely to be finalized during President Hassan Rouhani’s upcoming visit to France.
The formal agreement between the two companies will kick-start the reinvestment.
Recapitulation
Back in November, Financial Tribune reported that IKCO chief, Hashem Yekezare, said Peugeot had "officially" agreed to Iran Khodro Company’s conditions for resuming mutual cooperation.
“Creating a joint venture with each of the two companies holding a 50% stake, turning Iran into a regional export hub for Peugeot and transferring technology and investment are among Iran's conditions for resuming cooperation with Peugeot,” Yekezare was quoted as saying.
In a meeting back in mid-July, Yekezare and Jean-Christophe Quemard, vice president and a member of PSA Peugeot Citroen managing board, discussed undertaking comprehensive joint ventures and exports.
At the meeting, Quemard emphasized that PSA Peugeot Citroen was determined to actively participate in the Iranian market, making it a gateway to the region.
At the time, the two sides also agreed on equipping IKCO’s vehicles with eco-friendly engines, which is expected to be part of the deal.
With its two world-renowned brands, Peugeot and Citroen, PSA Peugeot Citroen sold 2.8 million vehicles worldwide in 2013, 42% of which were outside Europe.
In August, reports circulated that the French carmaker was hoping to offer older models in the local market like the now-defunct Peugeot 307 large hatchback model, which had moderate sales in the European market, but was later shipped to China in sedan form. News of this has now gone quiet.
The second largest carmaker in Europe, PSA Peugeot Citroen recorded sales worth €54 billion in 2013.
The French carmaker withdrew from Iran in 2012. Peugeot was lured into leaving Iran by General Motors with promises of a share in its market, which the Detroit-based company did not live up to at the time.
Auto market experts say the losses incurred by the IKCO because of Peugeot’s decision to cut ties with its Iranian partner exceed €800 million and many have demanded full compensation for loss of business.
The Iranian Parliament’s assessment of the issue indicates that the domestic sales of Peugeot cars fell by 68% following the French company’s withdrawal from Iran’s market, reaching 145,000 cars per year. But the IKCO chief says the losses could be compensated through concessions offered by Peugeot in the new contract.
Fiat's a Possibility
President Rouhani was in Rome on Monday and will later head to Paris to meet with French President Francois Hollande.
While in the Italian capital, the Iranian president is expected to sign automotive deals with their large automakers. It's not known if Rouhani will discuss deals with Fiat.
Fiat has intimated in the past it is looking to push ahead with its plans to sell new cars in the Iranian market and has already started selling the Fiat 500.
Previous attempts at importing the Linea market fell flat, considering their high price point on entry due to import tariffs of 100%.
However, in December, Minister for Trade, Industries and Mines Mohammad Reza Nematzadeh said he welcomed auto contracts with Italy's Fiat, but further information on that deal has remained elusive.
