Economy, Auto

Auto Industry: Bumpy Future Despite Gains

Auto Industry: Bumpy Future Despite Gains
Auto Industry: Bumpy Future Despite Gains

Iran's auto sector has seen a boost in production since it was exempted from US sanctions under the Geneva interim nuclear accord reached in November 2013 and executed in January 2014. With the announcement, domestic and international car manufacturers have taken preparatory steps for joint cooperation when the economic and political situation allows.

The Iranian auto market is potentially lucrative as the country has a massive consumption market and also potential to become a regional manufacturing hub. Renault and Peugeot were active in Iran until 2013, when they were forced to leave the market under external pressures. The two French carmakers were undertaking joint projects with Iran Khodro (IKCO) and Saipa, two major Iranian auto manufacturers, a cooperation that helped Iran hit peak sales of 900,000 vehicles in 2013, with Peugeot selling 458,000 cars and Renault over 100,000 vehicles.

US sanctions targeting the auto industry, introduced in June 2013, produced a sharp decline in domestic production to about 737,000 in the fiscal year ending March 20, 2014.

However, following the introduction of the Geneva deal, Renault and Peugeot dared to resume supplying parts, helping assembly recover, with a 71% rise reaching 522,000 in the six months to late 2014, compared to the same period in 2013. Passenger car production was also up by 74% reaching 442,000 and pick-up trucks by 71%.

However, domestic producers have faced public and parliamentary criticism over quality and after-sales services, leading some analysts in Tehran to doubt a production target of 1.4 million vehicles for the fiscal year ending March 2016, set by Mohammed Reza Nematzadeh, the minister of industry.

The key factor though, in the long run, will be whether diplomacy continues to roll back sanctions. Joint projects with western automakers would improve quality and boost public confidence, tapping pent-up demand. Realizing the issue, IKCO announced plans in July 2014 for cooperation with Peugeot and Renault on four new models: the Peugeot 301, Peugeot 2008, Clio IV and Captur, IKCO Industrial Group website announced. But international operators will not return with gusto while financial sanctions are jeopardizing money transfers. Despite recent nuclear agreements, Iranian banks are still barred from SWIFT, a system that facilitates international bank transfers.

The challenges facing automakers are unprecedentedly huge, leaving Iran’s auto drama incomplete. Whether it will gradually establish the foundations for a sustainable recovery, or stick into a fading hope under the ashes of crippling sanctions remains to be seen.