Economy, Auto

PSA Planning Return

PSA Planning Return
PSA Planning Return

If international negotiations over Iran's nuclear agreement conclude by next week, Iran will again become a crucial market for PSA Peugeot Citroen, according to a French auto magazine.

L'usine Nouvelle reports this week that the auto group has confirmed it will no longer produce complete knock down as part of their new joint venture with Iran Khodro.

"We own 30% of the market in Iran. But we do not touch a cent."

Carlos Tavares, the group's CEO, made the statement on the sidelines of a signing of PSA in Morocco.

The CEO said that because of the current situation afflicting sales of cars, due to sanctions, the group continues to work with its local partner Iran Khodro to get new vehicles off the production lines and into Iranian buyers' hands.

Tavares, however, did note that any future agreement between PSA and IKCO will be directly intertwined with negotiations over Iran's nuclear agreement.

  300,000 Peugeots Produced in IRAN

Approximately 320,000 Peugeot were produced and sold in Iran last year by Iran Khodro, which also manufactures at its plant in Karaj.

The former PSA partner assembles 206 and 405 models from parts purchased from different suppliers, including Chinese.

The CEO said the French receive no royalties on the sale of the vehicles produced by IKCO, due to the financial restrictions in place.

Due to the tightening of international sanctions driven by the US and its alliance with the American General Motors, PSA was forced to leave the Iranian market in 2012 .

The links, however, have never been broken between the French and its former partner. But relations became complicated during the past few years.

"During hard times, they had the impression that we had abandoned them. It is therefore difficult to regain their trust in a business agreement," said Tavares.

To regain that trust and to resettle in the country, PSA envisages a paradigm shift, a request that seems to strike a chord with Iran Khodro.

  50/50 Joint Venture

The two manufacturers are now working on a joint venture owned 50% by each partner to produce vehicles adapted to the Iranian market, including the Peugeot 301 sedan early May, Maxime Picat, the director of Peugeot brand, said who has also met his counterpart from Iran Khodro Hashem Yekehzare, according to IRNA.

The new partnership was initiated at the conference in Tehran in November 2014, in which Kia had participated, along with Peugeot and Renault.

 According to AFP, the Iranian Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh has set a target of 80% production achieved within five years as part of joint ventures.

Iran Khodro produced about 600,000 vehicles in 2014, the same as 2011.

  Americans and Chinese

PSA wants to take advantage of this windfall.

 "In our goal of one million vehicles sold in the Africa-Middle East region in 2025, 450,000 will be in Iran, 200,000 in Morocco and 350,000 more around the region,"  says Jean-Christophe Quémard, director of the Africa-Middle East region.

PSA and IKCO have now reached production levels of before 2011. But competition has become difficult, especially with the interest of US manufacturers and the arrival of Chinese brands, which were not affected by sanctions. The Chinese now hold 9% of the Iranian market.

The future of Iranian auto production is up for grabs, with everyone including the French vying to increase their market share. Time will tell who will win out, however with PSA's diligence in the past couple of years to revive its market share, it is likely to keep a lion's share of sales.