What the Renault Deal Means for Iran

The latest auto deal was signed by Renault in Iran earlier this week, but what does the new deal mean in the long run to the Iranian automotive buying public?

Are car buyers likely to benefit from low-cost cars of reasonable quality or are they going to be overpriced as usual?

Renault recently reestablished itself in its full capacity in the Islamic Republic with several developments locally by introducing the Renault Sandero and Sandero Stepway most recently, as well as importing fully assembled Dacia models under the Renault brand, namely the Duster SUV and Talisman models.

The announcement that the joint venture would produce at least two new vehicles with Industrial Development & Renovation Organization will help Renault garb a majority share of the business and also be able to call the shots.

“The Iranian government wants to attract foreign investment in the Iranian car industry to bring competitive new products benefiting Iranian customers with respect to standard, quality and safety,” Iran’s Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh said to waiting French press on the sidelines of the Paris Motor Show on September 30.

He added that different proposals were discussed and due to the company’s continuous presence in Iran (even during sanctions), Renault was given the chance to do the project.

During the signing of the JV, Carlos Ghosn, CEO of Renault, said that with a 2-million vehicle market projected by 2020, Iran’s automobile market has undeniable potential.

“The signing of this agreement corroborates the strategic choices we made in Iran and opens a new era by enabling Renault to assume a very strong position,” he said.

The new contract deems that the new factory will produce 150,000 vehicles per year, which will be added to the group’s capacity of 200,000, with a deadline for 2018 for start of operations.

Until now, Renault has had to work at the behest of the oligopoly of local companies, including IKCO, SAIPA and Pars Khodro. What this new deal possibly means is that they are now in control, as their partner is the IDRO Group itself and not any of its subsidiaries.

The IDRO Group is one of the largest companies in Iran and one of the biggest conglomerates in Asia. To further understand the company, it is both a partial owner of SAIPA and Iran Khodro, and by extension Pars Khodro, along with their subsidiaries.

What its presence in this contract means is there is a less of a chance of it failing in the short- to medium-term. It also points to the full backing of the government in the project, should it require further cash injections down the line.

  Better for Consumers

The new deal says it hopes to boost annual production to 150,000 vehicles, with the Renault Duster and Symbol models being the first to roll out of the local factory.

Like many other foreign car companies who started production in Iran in recent years, the Renault deal would have to produce a percentage of the parts in local factories.

This is not so much as a disadvantage as one may assume, due to the fact that Iran’s auto part makers are aware of the production issues and quality control standards that Renault would require for their future fleet.

It is also an advantage for Renault for further production in Iran, as IDRO’s subsidiaries, along with SAIPA and IKCO, has produced the L90 (second generation Logan) in Iran for a number of years with many of the parts usable in the Duster and Symbol models.

This would greatly reduce the time and cost of entry of the new vehicles.

The prices of Duster and Symbol models are also expect to fall to much more buyer friendly levels, as currently many would-be buyers are priced out of purchasing the vehicles due to their high import tariffs.

 A near-new Renault Duster is listed on secondhand car-buying website Bama.ir for 990 million rials ($28,000) that are “flipped” once it is imported by the original buyer and thus sold more expensively.

The new deal would counter the secondhand vehicle market and their high prices. It is estimated that the new price for the Duster should be below 700 million rials ($20,000) and if people are lucky it may even be below 600 million rials ($17,000).

For the Symbol—the small sedan vehicle being hailed as possible taxi fleet replacement in the next few years by Tehran’s taxi drivers—it could fall to 500 million rials $14,000) in the next few years.

However, these prices are just estimates, as neither IDRO nor Renault has released details on prices yet.

Other cars are also expected to make it to the factory floor in 2018-19, though neither company has given any further details yet on which ones they could be.

Nevertheless, on several occasions, Renault has said it intends to launch the Renault Kwid model in Iran due to its low-cost.

Highlight: A near new Renault Duster is listed on secondhand car-buying website Bama.ir for 990 million rials