Following the recent fallout between Iran and Saudi Arabia, imports of Toyota and Mercedes are likely to drop drastically, said the sales deputy of Toyota Iran.
According to Mehdi Dadfar, 95% of all Toyotas and Mercedes entering Iran previously transited through the Persian Gulf littoral countries, Eghtesad News reported.
Saudi Arabia’s execution on January 2 of outspoken Shia cleric Sheikh Nimr al-Nimr triggered international condemnation and set off protests throughout the Middle East. Enraged demonstrators stormed the Saudi Embassy in Tehran and its consulate in Mashhad.
A day later, the oil-rich kingdom cut off diplomatic relations with Iran, a move followed by several of its smaller allies. This also disrupted the business equations in several sectors.
Chinese Domination
According to Dadfar, after the imports of Toyota and Mercedes stop through these channels, Iran's auto market will have a larger opening for the entry of new Chinese brands.
Although experts stress that the preference of Iranian buyers has shifted from Chinese and South Korean cars toward European and Japanese vehicles, Dadfar said this will "not stop Chinese carmakers from trying to dominate the market".
"What's certain is that European cars have won the trust of Iranian buyers. However, this does not mean that Chinese auto manufacturers will simply sit back and watch the Europeans grab a larger market share in Iran," he said.
He added that the Chinese brands currently have a decent share in Iran's auto market and are familiar with the business environment in the country, "it is quite likely that they will soon even dominate the domestic auto manufacturing sector".
Dadfar noted that in terms of quality, the high-end Chinese models have risen to compete with European and American cars, which makes it difficult for Japanese and European brands to easily carve a large share for themselves.
Iranian import regulations have recently been strictly focusing on after-sales services, which have made it difficult for foreign brands to enter.
However, the Chinese brands, which have already set up business, can expand their after-sales services.
Dadfar further said Chinese cars have lately been competing neck-and-neck with local brands and their popularity with Iranian customers is partly due to the fact that their after-sales services are reliable.
The Chinese have proven that they operate quickly and imposing strict import regulations for the European and Japanese brands will only slow the two down and result in a more widespread presence of the Chinese.
Alternative Routes
Former head of the High Council of Imports, Mohammad Hossein Barkhordar, and the former head of Management Committee affiliated to Iran's Chamber of Commerce, Industries, Mines and Agriculture, Majid Reza Hariri, believe alternative routes will be used for importing cars to Iran in the aftermath of the Saudi-Iran row.
Some officials mention Oman as the most likely route for resuming car imports, while others suggest Iraq and Turkey. Although most vehicles previously entered Iran via the UAE, nearly 40% currently enter the country through Oman and less than 10% via Saudi Arabia, Eghtesad Online reported.
Others maintain that once western-imposed sanctions on Iran over its nuclear energy program are lifted, several Japanese and European carmakers will be able to directly export vehicles to Iran.
Iran and six world powers (the five permanent members of the United Nations Security Council plus Germany) reached a landmark agreement in July that limits Tehran's nuclear program in exchange for an end to decades-old trade and financial restrictions that hampered the country's economy.
The deal, officially known as the Joint Comprehensive Plan of Action, is expected to take effect in mid-January.
Another automotive expert, Farbod Zaveh, told Donya-e-Eqtesad that even if the recent political turmoil leads to the UAE's severance of business ties with Iran, this will not have a shock effect on Iran's vehicle import market, "as the sector is already stagnant."
