What PSA-Iran Khodro (IKCO) Deal Means

What PSA-IKCO Deal Means What PSA-IKCO Deal Means

Iran Khodro Group and PSA Groupe (consisting of Peugeot and Citroen) finally took the wraps off their long-awaited deal last week to produce new vehicles in the country under a new joint venture.

The announcement by the French company can be seen as a sign that a deal is truly underway. Prior to this JV announcement, several auto commentators had come out saying the deal has been done behind closed doors, albeit without any official confirmation or denial.

What PSA calls a “a crucial milestone” in its business with Iran Khodro could be seen as a sure sign that the business group is solid on its commitment and investment to the country in the long term.

The 50/50 joint venture is expected to bring in €400 million over the next five years in manufacturing and R&D capacity, Reuters quoted PSA as announcing in its statement earlier in the week.

The investment will contribute to the development of a competitive manufacturing base for producing, launching and marketing Peugeot 208, 2008 and 301 models, fitted with the latest-generation engines—something IKCO has been insisting on receiving as part of the deal for over 12 months.

According to IKCO officials earlier in June, 100,000 cars will be manufactured in the first phase and 200,000 in the second.

As part of this landmark deal, Peugeot said Iran Khodro can use the platform that will be created as a result of the joint venture to develop its own vehicles. The new indigenously developed vehicles are expected to supersede the aging Peugeot 405-based fleet currently in production. These vehicles include the recently released IKCO Dena, IKCO Samand and Samand Soren, as well as the long-in-the-tooth Peugeot 405 and Peugeot Pars models.

The new deal will also provide the capacity, according to the report, to sell these new Iranian vehicles across the region, which Iran Khodro has been promoting in places like Iraq, Oman and Azerbaijan in recent months.

IKCO’s current regional market share is dismal, as it is faced with challenges from companies hailing from China and more recently Russia, which see, at least the Commonwealth of Independent State, as their own backyard.

It also remains to be seen how IKCO will forcefully ramp up its distribution network in these regional networks to push new sales.

  Launch Date and Prices

The first vehicles are expected to roll off the production line from the Tehran plant in the second half of 2017.

Ideally, Peugeot would like to use this opportunity to push the sales of these cars in the local market first, as Iran, after Turkey is one of the most profitable places to sell cars.

They are also likely to tap into the distribution network of IKCO showrooms across the country, which are in prime spots in several cities and towns.

Peugeot 301 has been pegged as a popular car in this market due to its low production and sales costs, and also its potential as a replacement for Peugeot 405, especially as taxi.

However, according to a recent article in the Financial Tribune, prices of new Peugeots produced in Iran will be set according to international standards, said Iran’s deputy minister of industries, mining and trade on June 9.

Mohsen Salehinia added that the prices of cars produced in the new joint venture with Peugeot would be set similar to the strategy applied to some local cars in the past few weeks. In other words, the prices of these cars will not be set by the government.

  Bringing Back the Sales

According to statistics by the Iran Vehicle Manufacturers Association, the Iranian market reached a peak of 1.6 million vehicles in 2011. The new JV should now increase this volume to around 2 million vehicles by 2022.

It should quickly regain this level and reach 2 million vehicles a year by 2022. Current estimates put the number of Peugeot cars on the road in Iran at more than 4 million, Reuters added.

Over the past months and specifically in the wake of the removal of sanctions against Iran, several leading European car manufacturers have been discussing potential partnership deals with Iran Khodro. They included Volkswagen, Renault, Mercedes-Benz and Fiat among others.

IKCO has been desperate to sign up with at least one foreign automaker to produce a new generation of vehicles in Iran’s market. Peugeot was obviously ahead of the pack due to its historical place.

Whether Iranians are going to buy into this new Peugeot deal remains to be seen, as Chinese cars continue to grow their market share due to their overall low selling price.