Renault Can Shake Off SAIPA, IKCO Stranglehold

EghtesadOnline: Domestic carmakers need to grow and develop and move towards manufacturing rather than assembling cars from imported parts, says an advisor to the minister of industries.

News ID: ۷۴۴۲۹۲

04 November 2017

“Producing car body, setting up assembly lines with auto paint shops do not make a country an ‘auto manufacturer’.” Saeed Madani, former head of the SAIPA Group was quoted as saying by state-owned Iran newspaper.

Openly criticizing the poor performance of domestic car producers over more than half a century, Madani said, “Iranian ‘automakers’ are only auto assemblers.” The companies largely depend on imported parts that are not necessarily of high quality. In recent years car buyers have complained about the poor quality of brand new vehicles -- an issue also taken up senior officials but without any positive outcome.

Market observers, critics, and government officials often have criticized Iran Khodro and SAIPA for being merely assemblers rather than manufacturers, Financial Tribune reported.

The two companies’ unchallenged duopoly has been slammed time and again as the main reason for the industry’s lamentable situation in which prices keep on rising and quality deteriorates at terrible speed. The two state-backed carmakers with an 88% share of the market have a comfortable domination over the auto industry they simply do not deserve.

Madani says “Iran cannot export the cars it produces” because the vehicles cannot compete in the saturated global market where all are sellers.

Auto exports have a meager share in Iran’s foreign trade and during the first half of the current fiscal that started in March, harely 2,570 IKCO and SAIPA cars were shipped overseas.

On a hopeful note, Madani says, Renault is set to enter the domestic auto industry as a fully independent entity. If and when the French giant starts production in the country it could well be able to challenge the deplorable IKCO-SAIPA stranglehold.

Renault

Renault signed a €660-million trilateral production deal with the Iran Industrial Development and Renovation Organization and a local private company Negin Khodro (aka Naseh Parto) in August.

Renault is reportedly setting up production lines in the industrial city of Saveh, 100 km south of Tehran, and has started talks with local spare parts makers and suppliers.

During a recent interview with Financial Tribune’s sister newspaper, Donya-e- Eqtesad, Pascal Felten Renault’s director for MENA region said, “Renault is set to establish its full chain of production, sales, and after-sales services independently in Iran.”

Apart from 22 factories in Europe, the French carmaker has 14 auto factories in South America, Africa, and Asia. In all of these sites, it owns the majority share and has a tight grip on management.

Just like in other emerging markets, in Iran Renault has a majority stake in the joint venture (60%), while Negin Khodro and IDRO each have 20%. Renault has the right to appoint the director of the company.

Felten says, “Renault’s independent presence in Iran will enable the company to offer products and services which can meet the company’s standards.”

The French automaker is set to produce three models in Iran, namely Kwid, Duster, and Symbol. The first Kwids should be in the market by late 2018.

Tough Competition

While Renault emphasizes on “independent presence in Iran”, its arch rival, Groupe PSA has signed joint venture agreements with IKCO and SIAP through its Peugeot and Citroen brands. Similar to Renault, Groupe PSA also has ambitious  plans for expanding its presence in the Iranian auto industry.

Earlier this week in a talk with the Tribune’s another sister publication ‘Tejarat Farda’, executive vice president of Groupe PSA for Africa and the Middle East said the conglomerate has plans to help Iranian companies develop into capable auto manufacturers.

Jean-Christophe Quémard says, “Technology transfer to Iran and localization are on top of Groupe PSA agenda.”

“As per the joint venture agreement with Iran Khodro, we will assist the company to develop into a capable producer of cars,” he told the Persian-language weekly in Paris.

IKCO and Groupe PSA’s Peugeot brand signed a €400-million deal in June 2016.

Both Felten and Quémard believe that Renault and Groupe PSA will eventually face off in Iran’s market, but neither shies away from the confrontation saying that they have been competing with each other for decades and the race comes to them as something natural.

Monitor and Regulate

Madani is of the opinion that, “Collaboration with foreign firms is good and helpful but they should be regulated and monitored. Foreign carmakers should be held accountable and fulfill their commitments.”

According to the joint venture deals between local and foreign carmakers, all three major foreign firms operating in Iran — Renault, Peugeot, and Citroen — have agreed to use locally manufactured parts in their Iran-made products, transfer technology and assist local firms to export cars and parts.

The so-called  ‘localization clause’ stipulates that in all new agreements signed with foreign companies at least 40% of the vehicle parts should be manufactured in Iran. The ‘export commitment’ requires the foreign partners to sell at least 30% of the locally manufactured parts and vehicles outside Iran.

However, the government’s oft-mentioned localization mantra has failed so far, as foreign firms are reluctant to work with Iranian suppliers since many lack modern technology and their products do not meet globally acceptable standards.

Madani says that while incentives should be offered to foreign carmakers to function and expand in Iran, they should not be under the misconception that unaccountability will be disregarded.