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Steady Growth Predicted for Auto Industry
Economy, Business And Markets

Steady Growth Predicted for Auto Industry

New figures indicate that Iran’s auto production has got off to a strong start in the fiscal year 2014/15. The good news comes as a report by the Business Monitor International, released in September, has forecast steady growth in new car sales over a 4-year period to 2018.
According to a report by IRNA, the country registered a 73.4% year-on-year increase in auto output to 404,010 vehicles between March 21 and August 22, compared with 232,993 vehicles in the same period a year earlier. A total of 345,217 sedans were manufactured in the reported period, representing an annual increase of 74.3% from 198,059 units.
Given the strong start to FY14/15, BMI report suggests the time is right to revise upwards current production forecasts for Iran. Right now, reports project a 47.6% growth in car output, to reach 900,790 units. It is clear that there is strong demand for new vehicles from the Iranian population at present. As such, the potential for improved foreign relations between Iran and the west over the short-to-medium term has generated considerable interest from carmakers, none more so than French brands Renault and Peugeot, which controlled around a third of the market’s output before they withdrew in early 2012 in line with western sanctions. While both carmakers remain keen to re-enter the market and have partnerships in place to do so, the biggest threat to realizing the full return of foreign brands is that a permanent nuclear deal is unlikely to be reached by the November 24 deadline, which means some sanctions may still remain in place.
The most likely scenario, according to the BMI report, is one of protracted talks between Iran and the west through 2015. This could take the form of a further extension of the current agreement following the November 24 deadline, or the announcement of a partial deal which would help build confidence in continued negotiations. However, this would be a long way off from a ‘permanent’ agreement. Core international sanctions would remain in place, ensuring that the great majority of foreign investors, which have in recent quarters shown increased interest in Iran, would be forced to put on hold plans to enter the country.
The auto sector, recognized as Iran’s biggest non-oil industry, was one of the sectors to benefit from the temporary lifting of sanctions as a result of interim Iran-P5+1nuclear deal signed in November 2013, and raised the interest of foreign manufacturers. This enabled parts and components to be imported again, although Iran Khodro (IKCO) had been continuing production of certain Peugeot models using self-developed parts and technology.

 Projections for Q4 2014
The extent to which Peugeot has been missing out from not being involved in the market itself is reflected in data from the Iran Vehicle Manufacturers Association (IVMA), which shows Peugeot-branded vehicles still ranked second in 2013 and also in the first quarter of 2014, when the brand claimed 30% of the market. However, despite the ongoing popularity of Peugeot models, both French brands have been hit financially by not operating themselves in Iran. In 2013, PSA Peugeot Citroen estimated a loss of 1.5 billion euros in revenue from the country and Renault took a one-time charge of 511 million euros on its Iran business.
While negotiations between Iran and the P5+1 group have been ongoing with the aim of reaching a comprehensive agreement regarding Iran’s nuclear program, carmakers have been busy lining up agreements that would see them regain access to a market forecast by BMI to rise back above the 1-million unit level in 2015.
Renault’s commitment to re-entering the market has been evident in its recent global restructuring, which has seen its Asia Pacific division, which previously encompassed 48 countries, divided into ‘Asia Pacific’ and ‘Middle East and India’. One of the key areas of focus laid out for the Middle East and India division is to restart operations in Iran. Under the reported agreement between Renault and IKCO, the Iranian carmaker will produce the Clio 4 and Captur.
Similarly, IKCO will produce two new Peugeot models under its agreement with PSA, the 301 and 2008. The companies will take equal shares in the joint venture, suggesting IKCO may get some of the technology transfer it set out as a condition for cooperation back in May, although full terms of the partnership have not been released.
According to official figures, production of Saipa’s Nasim and Saba Pride models reached 75,863 units between March 21 and August 22, while production of Peugeot’s 405 and 206 reached 39,475 and 33,962 units, respectively. A total of 77 buses, 27 minibuses, 4,060 trucks and 54,629 vans were produced by Iranian automakers in the reported period.
Some advantage through domestic production will be useful as the market becomes increasingly open to foreign brands. In the first quarter of the current Iranian calendar year, which started March 2014, Iran imported around 23,000 cars, compared with 4,000 in the same period of the previous year. The government has also pledged to remove all import tariffs on cars within two years and has already dropped the tariffs on hybrid and electric vehicles as it looks to improve the competitiveness of the domestic industry. Having foreign firms producing and cooperating with national carmakers will also contribute to this goal in the longer term although how quickly this can be achieved will depend on the progress of nuclear negotiations.
On the sales side, a 15% growth over 2014 is predicted to reach 817,650 cars sold across the country. Beyond the current year, a further growth of 36% has been projected, which should take annual sales to the 1,111,730 mark by 2018.

 Trade
Improved forecasts for production also mean that Iranian auto exports should also increase over the current fiscal year. Recently, the Fars News Agency reported that Iran Khodro plans to export 10,000 vehicles to Russia. The move is in line with the company’s efforts to raise its world market share. IKCO intends to sell one-third of its cars in international markets.
But what is important is to provide suitable after-sales services to our customers in this market. Iran is also looking to boost its exports elsewhere in the world. In this regard, in June 2014, Ahmad Nematbakhsh, the secretary of the Association of Iranian Car Manufacturers, stated that 90% of cars produced in the country meet Euro-4 standards. Nematbakhsh added that Euro-4 standards integrated into car components cut fuel consumption and assist in environmental protection. Peugeot 206, L-90, Samand and Tiba are some of the vehicles conforming to the Euro-4 standards.
Vehicle exports from Iran fell 94.3% year-on-year for the first five months of the Iranian year, according to several news agencies. BMI believes there are a number of reasons for this, making it difficult for domestic producers to rectify the situation in the near term. The biggest cause is the parallel slump in production, brought about by the withdrawal of several international carmakers from their local assembly agreements.

 

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