Foreign Credit Will Spur Iranian Car Market

Foreign Credit Will Spur  Iranian Car MarketForeign Credit Will Spur  Iranian Car Market

Iran's automotive sales are increasing, according to official results, while an increased impetus is expected from direct imports by foreign automotive groups, Renault and PSA in particular.

Recent imports from Iran Customs Administration show this in further detail. Two weeks ago, according to the official agency, Iran saw a 27% jump in the total value of imported cars with engines smaller than 2.0 liter.

At that time, 5,129 passenger vehicles with engine capacities between 2-2.5 liters and worth approximately $132 million were imported. Year-on-year, that's a 9% increase.

These figures may look striking, but they are actually not very impressive.

The reason for this is because credit in Iran remains extremely limited, despite the rise in payment facilities offered by several foreign car dealers.

In the previous Iran National Auto Loan scheme last year, 100,000 loans were snapped up within six days by applicants eager to buy Iranian assembled vehicles, including pickups.

Sales figures like this can only be surpassed by Tesla's recently launched Model 3 vehicle, for which over 300,000 placed orders down in a two-day period—without a loan facility.

The key to satisfy the raging demand for Iranian and foreign brands alike is only by offering credit offers, but there is a spanner in the proverbial works in creating a benefit for the market.

Iranian lenders are struggling with the sheer number of applicants seeking better payment deals, as the deals on offer are not a dot as good as those in foreign markets.

Why, for example, a foreign car company, like Hyundai that has a strong brand identity in the Iranian market, not have a Korean financial institution offer loans in a joint venture with a local financial group?

But you cannot put aside currency fluctuations and here's why.

If say "United Korea Bank" were to offer $50 million in hard currency to a new JV with an Iranian, which in turn would have matched that amount with another $50 million, Iranian car buyers could buy thousands of cars.

However, the unsteady nature of the Iranian rial even with President Hassan Rouhani's calming economic policies in place would still place that Korean $50 million in rough waters if anything were to go wrong.

Nor can you put aside financial restrictions coming in from the left field either. There could be at any point a series of counter-sanctions from the US' Office of Foreign Assets Control, thus halting the transference of money.

UKB would then face a situation similar to that of companies like telecoms operator MTN that got $1 billion stuck inside Iranian banks.

Another problem is the issue of checking the creditworthiness of each client applying for a loan?

Mr. A, as we'll call him for the purpose of this article, wishes to buy a new Hyundai Accent with installments worth 20 million Iranian rials a month over 48 months, a quite normal financing deal, as foreigners would note. For receiving the loan, Mr. A introduces an economically inactive relative, Mr. B, who cannot be checked for his creditworthiness, because the latter happens to lack a credit card, mortgage or contract mobile phone, which are the usual methods of checking whether you'll keep up with your monthly repayments.

Another issue for proposed foreign lenders would be that there are no international personal credit rating agencies working in Iran.

Granted, Moody's Fitch and S&P have begun looking at rating Iran again after several years of sanctions. But at the micro level, Experian has not made any move to start assessing Iranian creditworthiness.

There is another way to move around the issue of limited availability of funds as auto loans: Foreign credit agencies can apply to offer credit at their own international rates to Iranian companies which, of course, is highly unlikely at present.

So, for the moment, all Iranian car buyers can only wait and hope that local financial groups can offer repayment deals that meet their budgets.