Will Iran save the world’s carmakers?

Automologist, MAC, thinks that the automotive world should keep an eye on Iran. A recent visit there only convinced him further...

Earlier this year I had the opportunity to visit Iran on a business trip and can thus tell you with first-hand knowledge that the clogged streets of Tehran hint at one industry alone that will massively profit, if and when the sanctions over the country’s nuclear programme are lifted. Recent developments have led to the possibility of sanctions relief starting as soon as January next year. There is likely to be a headlong dash by foreign manufacturers to take advantage of the car-hungry population, which totals some 80 million at last count, making it the second largest potential car market in the Middle East (Egypt being the biggest).

Industry analysts are already saying that the timing of the opening could not be more fortuitous for the world’s car manufacturers. Sales in America and Europe are probably at their peak and emerging markets such as Brazil, China and Russia are in the midst of a slump. The sanctions that have been in place since 2011 hit the country hard with sales slumping from 1.6 million to just 800,000 for 2012. Sales are already expected to be 1.3 million this year and to climb to the 1.6 million mark in 2016.

One thing that struck me when I was in Tehran recently was the dominance of Peugeot in the market, something that is not seen in many other markets. Of course PSA Peugeot Citroen will be looking to re-establish its grip on the market and achieve some 550,000 sales, and another French outfit by the name of Renault will also be looking to exploit its historic presence in the market.

Peugeot is rumoured to be about to restart production with Iran Khodro, and Renault is supposed to be in talks with Pars Khodro, with whom the French company is negotiating to buy a minority share in the Iranian manufacturer’s factories, and cement its position as a major Iranian player. Never backward about coming forward, there has been a rush of French Government Ministers visiting Tehran to smooth the way for the French industry.

But not so fast. the Iranian government is said to be somewhat unhappy with France’s hard line over the nuclear deal. And just to twist the knife a little more, Peugeot’s rapid exit from the country in 2012, after joining an alliance with General Motors, is still a bit hard to stomach for a lot of Iranians. That could leave the door ajar for Chinese carmakers, which have set up a network of importers despite the sanctions. But unfortunately, to date those Chinese models that have been imported have a well-earned reputation for poor quality.

I would think that competition from other carmakers will be intense, particularly with the close proximity to India and its bold designs to be a more regional player. Iran is an inviting country and not just for sales. European firms in search of low-cost production invested first in Spain, then Eastern Europe and have now turned to North Africa. Peugeot has a new plant in Morocco; Renault has set up in Algeria. It will take awhile but Iran - a promising market in a fast-growing region with a very young population - could be the next haven for auto-investment.