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Eyeing the Auto Market

Eyeing the Auto MarketEyeing the Auto Market

Foreign carmakers seeking a return to the potentially huge Iranian market with the lifting of international sanctions will find the business environment has changed: former joint venture partners now want to play the game by their own rules, AFP reports.

Iran’s auto industry has been a major casualty of international sanctions imposed over Tehran's nuclear energy program, with production numbers plummeting and workers laid off because of the ensuing economic slowdown.

France’s PSA Peugeot-Citroen and South Korea’s Hyundai left the country altogether, while Renault continues to export parts and assemble cars in Tehran.

Total car production was 1.6 million in 2011, but it halved two years later.

US sanctions on the auto industry in 2013 were the main cause, on top of American and European bans on Iranian bank transactions abroad.

But the auto sanctions were lifted earlier this year after an interim nuclear agreement was reached between Iran and world powers (the P5+1) and a final accord is still on the horizon, raising the prospect of better times for the industry.

That will draw international suitors to Tehran for the ninth consecutive Iran Auto Parts Show.

The organizers want to attract foreign investment but the conditions of a partnership are likely to change. With a population of 77 million the Iranian market is seen as untapped

More Local Production

Under new joint deals, the industry wants 40 percent of production done in Iran to begin with, rising to 85 percent after five years.

Iran Khodro, which has a 54 percent market share, plans to return this year to its 2011 production level of 600,000 cars.

Previously, it had agreements with Peugeot, Renault and Suzuki, but current production is done without foreign tie-ups, Hashem Yekezareh, Iran Khodro’s chief executive, told AFP.

“We expect our former partners back in Iran but on the terms that we offer,” he said.

Representatives from the French carmaker, for whom Iran was its second-largest market, met Iranian officials in Paris in early October to discuss a possible return.

Iran Khodro now wants a 50-50 joint venture rather than the previous 51-49 ratio in the visitor’s favor, encompassing production, sales, technology transfer and access to Peugeot-Citroen’s foreign network.

No Preferential Treatment

The partnership stretches back to 1990, but that won’t secure preferential treatment this time around.

“We know what Iran Khodro’s interests are and we will go to the company that best protects those interests,” said Yekezareh.

In early October, Iran Khodro unveiled two new models in collaboration with Renault at a plant in the northern city of Tabriz—a Captur urban crossover vehicle and the Clio 4.

Eventual production of those vehicles could raise Iran Khodro’s market share to 60 percent, but for a major boost to the auto sector a full and final nuclear deal is necessary.

“The day the nuclear deal is signed... business will pick up,” said a foreign auto expert who claims a preliminary agreement with Volkswagen’s Skoda has already been made. Hyundai and Fiat are also reportedly looking for deals.

Even so, as long as the banking sanctions are still in place, market conditions will not return to normal. And ahead of the auto parts show some carmakers cite other problems.

The Tehran government’s granting of an exclusivity deal on urban crossovers and city compact models to Iran Khodro and Saipa, the country’s second-biggest manufacturer, raises questions about anti-competitive practices.

Mostafa Jafari, the commercial director of Kerman Motor, which assembles Chinese brands Lifan and JAC, said his company has the capacity to make those cars and could triple its market share to 15 percent by doing so.

This week’s auto parts show should test foreign and local companies’ expectations alike.

 

Financialtribune.com