Reality Catching Up With Mediocre Carmakers

EghtesadOnline: Two leading state-run carmakers, Iran Khodro and SAIPA, are struggling to maintain their monopoly over Iran’s market. Recently their struggle got all the more difficult. A new joint venture that involves France’s Renault is here to challenge the long conceited state-backed carmakers.

News ID: ۷۷۸۵۸۶

20 August 2017

After one year of negotiations, the Industrial Development and Renovation Organization of Iran (IDRO) cemented a €660 million worth deal with Renault for launching the joint venture last week.

The JV stands out, as a foreign company, for the first time in Iran’s history, and is going to manufacture and supply its products without any link to the domestic giants who have grabbed the lion’s share of the local car market in the absence of international rivals, according to Azer News reported citing Trend.

“Iranian policymakers over the past four decades have given top priority to the local automotive industry due to its ability to create job opportunities and also high demand in the domestic market,” Akbar Mirza-Hosseini, car industry expert and the vice-chairman of the board of directors at Iran’s Rakhsh Khodro Diesel Company said.

According to Financial Tribune, Mirza Hosseini believes that the involvement of state players in the management of  leading carmakers is among the main shortcomings of the country’s largest non-oil economic sub-sector.

Auto Industry Landscape

About a year and half after the world powers removed nuclear related sanctions on Iran, including a bill that banned exporting car parts, the country’s auto industry has witnessed a fresh surge in  output.

Nonetheless, the flow of foreign cars also has dramatically hiked over the past year.

According to the latest statistics by the Industry Ministry, domestic carmakers in the first four months of the current fiscal to July  produced over 434,000 vehicles -- 17.6% increase year on year, with  Iran Khodro and SAIPA topping the list.

France’s Peugeot accounts for 32.4% of cars produced in collaboration with Iranian carmakers. In the meantime, China has a 14.9% share in Iran’s domestic production with Renault, which already has a 10.4% share of domestic production.

On the other hand, foreign carmakers that cooperate with Iran play a key role in increasing imports to the Islamic Republic.

According to the customs statistics, Iran imported 23,000 cars in the first four months of the current fiscal year, up 55% compared to same period last year.

Carmakers wanting to launch JVs in Iran first export their products to the market of 80 million people and test the pulse.

However, most of the agreements on forming JVs are rather slow.

Mercedes-Benz, Peugeot, Renault, Citroen, Scania AB and Hyundai  were among automobile manufacturers who came to agreements with Iranians and others such as Volkswagen and Skoda made breakthroughs in negotiations to enter the huge and growing car market.

Foreign producers say that their obligation to produce 40% of the  car parts in Iran has slowed efforts aimed at launching the JVs, claiming that Iranians are incapable of producing  spare parts both in relation to quality and quantity.

Renault Joint Venture

The joint venture with Renault in the first phase is expected to add 150,000 units to that company’s annual production in Iran. The first products of this agreement should be in the market by early 2019.

Some 60% of the shares of the JV belong to Renault and 40% to Iran, which is equally owned by IDRO and Negin Khodro, a private company.

Under the contract, gearboxes, chassis and some other parts will be produced in Iran under a separate contract with a Belgian company called Punch Powertrain.

The joint venture contract, which is projected to create 3,000 jobs, also calls for exporting 30% of its output. Renault’s two models, Duster and Symbol, will be the main cars that will be produced.

As reported by the local press, the agreement also stipulates that  the French carmaker help Iranian car parts markers to improve quality and competitiveness .

Renault is expected to launch a R&D hub in Iran.

Industry Impact of JVs

Although Mirza Hosseini criticizes the leading carmakers for assembling the cars of foreign giants and failing to manufacture their own brands, he believes that setting up joint ventures with international leading companies can and should play an important role in boosting the industry’s performance by acquiring modern technology.

Whatever the outcome of Iran’s cooperation with the French carmaker, it will likely have a positive and lasting impact on the domestic auto industry, as a third player emerges with a strong presence and shows the lethargic local lords that times are changing.

It is amply clear that the two local giants are not unaware of what is coming. Their low quality and high prices will not, and should not, last long.

Four decades of slumber has to end and as many Iranian car buyers say, why should the consumer always pay the price of the unending trial and error of the car companies who have long had total disregard for the rights of consumers.