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European Truck Manufacturers Showing Renewed Interest in Iran Market

Energy Desk
The Ministry of Industries says 140,000 commercial heavy vehicles need to be replaced in the coming years -- a huge market European truck makers are set to tap into
Volvo has made its comeback through a joint venture deal with SAIPA Diesel.Volvo has made its comeback through a joint venture deal with SAIPA Diesel.

With the implementation of the nuclear deal and easing of economic sanctions last year, heavy vehicle manufacturers from Europe are in the process of reentering Iran. The comeback has given local truckers and the transport industry some hope that the domination of low quality Chinese trucks is eventually coming to an end.

After months of arduous negotiations, the historic agreement between Iran and the six world powers, known as the Joint Comprehensive Plan of Action, came into effect in January 2016. Since then, European automotive industries have started forging joint production deals with local firms.

Before the tightening of sanctions in 2012 Iran was among the biggest truck markets in the Middle East in which European manufacturers were dominant. According to data released by the US-based management consultant company Arthur D. Little, some 50,000 commercial vehicles were sold annually in Iran and the country had a 38% share of Middle East heavy-duty vehicles market. In 2013 sales fell sharply reaching a massive 20% y/y decline.

With the imposition of the sanctions, the big names in foreign truck manufacturing industry opted out leaving a void in their wake only to be filled by the Chinese waiting in the wings.

The government in Tehran, struggling to replace the aging vehicles in its cargo truck fleet, had no choice but to let low quality Chinese automotive companies in. Some of the Chinese firms which have established businesses in Iran over the past six years are China National Heavy Duty Truck Group, Foton, FAW, and Dongfeng.

With local truckers reluctant to purchase Chinese trucks, sales of heavy-duty vehicles dwindled and consequently — according to data released by the Ministry of Roads and Urban Development — the average age of commercial vehicles reached 16.4 years in 2017 from 14.9 in 2012. A journey to cities and towns across the country shows that there still are some tucks carrying heavy loads that were built four decades ago.

Due to the constraints during the sanction years, the replacement demand for trucks in Iran is now substantial, which should drive up sales, a promising prospect which has goaded European truck manufacturers to look closely at the prospect of reestablishing business relations and joint ventures.

 Market Capacity

According to available data, there are 359,700 active heavy-duty vehicles in Iran’s cargo truck fleet. Over 125,000 (34%) are over 15 years old and almost 1,500 trucks are half a century old.

The Ministry of Industries estimates that about 140,000 commercial vehicles will need to be replaced in the coming years – close to 56,000 of them in the next three to five years alone.

Trilateral deals have been reached between The Ministry of Roads, Iran Road Maintenance and Transportation Organization, and the Iranian Fuel Conservation Company to renovate the dilapidated intercity and intracity transport fleet. SIAPA Diesel, Mammut Diesel, and other smaller local enterprises are to contribute to the schemes.

Through the scheme offering low-interest loans, SAIPA Diesel will reportedly offer 3,000 Volvo trucks and Mammut is set to deliver 5,000 Scania heavy duty vehicles by the end of the current fiscal which ends in March 2018. The two are now delivering vehicles to government organizations.

While the interest rate on the loans is relatively low (about 9%), the trucks are still not affordable for many. For instance for getting a Volvo FM460 which is priced 3.8 billion rials ($96,000), the truckers are required to pay some 800 million rials ($20,000) in down payment and the rest in 60 installments — each installment  is about 64 million rials ($1,600) an amount which many might not be able to pay.

European Interest

In recent months several European truck makers have signed production and import deals with local firms. The international giants include Daimler AG, Volvo, Scania, and Renault Trucks.

Daimler AG — The first among truck makers to make a foray into Iran was Daimler AG. The prominent German company moved fast to re-establish ties with Iran signing preliminary agreements with Iran Khodro on January 17, 2016, a day after the nuclear deal eased the crippling sanctions.

Head of Daimler Trucks Wolfgang Bernhard said last year, “There is a huge demand for commercial vehicles in Iran. We plan to quickly resume our business activities in the market there.” Plans include a joint venture for the local production of trucks under Daimler’s Mercedes-Benz brand, collaboration in engine production and setting up a sales section.

In a recent development, on September 12, Daimler and IKCO officially agreed on the import of heavy-duty vehicles and production and assembly of Daimler trucks in Iran.

Volvo Trucks — The Swedish company has made its comeback through a joint venture deal with SAIPA Diesel.

Under a deal signed in July, SAIPA Diesel will assemble 3,500 units of Volvo FH heavy goods vehicle in the current fiscal. As per the agreement 5,000 units will be assembled next year.

Scania — Another Sweden-based automotive giant interested in working with Iran is Scania. When other European heavy vehicle manufacturers walked away due to the sanctions, Scania was one of the few international players that  endured.

The company is present in Iran through imports and local assembly in collaboration with Mammut Diesel. According to the company’s website, some 990 trucks were delivered to Iranian buyers in 2016.

Tobias Segerstad, head of the Iran department of Scania, has been quoted as saying that the country is a strategic focus market for his company in the short to medium term.

Renault — The French automotive firm with a long history of presence in Iran at first seemed uncertain to sell its heavy vehicles in the country and postponed its return until the anniversary of the JCPOA earlier this year.

Renault T, C, and K series are due to enter the market through imports. The company is also in talks with SAIPA Diesel to produce the D-Wide midrange trucks in Iran.

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