Never Mind France, China is Not Leaving!

On more occasions than one following the Joint Comprehensive Plan of Action (JCPOA), Iran’s auto industry experts and pundits have said on and off the record that China’s auto relations with Iran will end soon – they hoped. In fact, this newspaper has reported time and again that people think the Chinese are going to leave, and car buyers will suddenly have on offer the latest models from France, Germany and elsewhere at “affordable” prices.

That, of course, is not happening.

It appears that like before the sanctions, some big carmakers, the French in particular, are not interested in making and affordable modern cars in Iran. They are again opting for the usual staple of outdated models at exorbitant prices, according to recent production figures.

Indeed, so much fanfare has been bestowed upon the French and their introduction of supposedly new models, we have almost missed a wider trend in the market.

 Spite Your Face

French auto companies may, in fact, have shot themselves in the foot as their post-sanctions rush back to Tehran may have caused them to sign hasty deals which do not help either their companies nor the Iranian car buyer. Meanwhile, local partners and car assemblers are notoriously difficult to deal with, as rumors from those working with certain French car brands have said to me on several occasions.  

Furthermore, this paper has reported in recent weeks that Renault with its massive role in the domestic car industry is none too keen on sharing its technological know-how with local car manufacturers. Who can really blame them for slowing down the introduction of new cars like the Kwid.

While the firm at the same time is being forced to create an alternative supply chain made up of debt-laden Iranian auto parts makers with below average quality. The problem with this policy is that both car supplier and car buyer are at the mercy of smaller workshops, as opposed to being part of a much wider global supply chain with lower cost and ultimately better quality.

The problems for the French seem to be piling up, with recent global sales figures giving cause for concern to those who were hoping for a deluge of modern cars right after the JCPOA.  A case in point would be Peugeot 405 -- that car is now officially the second best-selling car in Peugeot’s catalog in H1 2017 -- a tad embarrassing for PSA Group and a bad sign for the car buyers in Iran.    

 Chinese Warming Up

The French firms’ kerfuffle in launching their over-priced models with dubious auto parts is apparently to the benefit of Chinese companies. Despite having been marred by a  reputation for low quality, the Chinese are well under way to upping their game, with better quality vehicles.

Despite the previous poor reputation, Chinese automotive firms which are already operating in Iran are quite content with their position and are backed by a billion dollar industry just three countries apart from the Iranian capital. One should remember that China does not have half a dozen car companies struggling for dominance, it has hundreds, all of which feed into sales of around 28 million vehicles a year.  

Moreover, the very nature of the Chinese market demands ever-changing models. An example of that development is a company like Chery which recently had a large event this week to show off their new ‘luxury’ Tiggo7 SUV in several Iranian cities.

That car, the company claims, matches South Korean competitors like Hyundai and Kia, and looking at the gadgets on offer you cannot but be impressed by the overall quality. A far cry from the dodgy looking cars made and sold ten years ago in the world’s second economy.

That company also recently launched its new automated manufacturing plant in Bam Special Economic Zone (SEZ) in the south of Iran, where they have imported the latest robots to build the new SUV model. With developments like that in Bam, competing car companies coming from China are becoming emboldened on their so-called most profitable market after the Chinese mainland.

Another example of China moving up the value chain within the Iranian market is the recently announced move by German-Chinese car company Borgward which intends to launch two models in the country by the end of this year.

That firm has so far successfully fused German design skills to the low-cost manufacturing of the Chinese type. What this means, in a nutshell, is that Chinese buyers will no longer accept defective copies of European designs and are now opting for some real luxury and comfort. What this means for Iran is better cars arriving at a much-accelerated pace.