Iran Automotive Industry on Damage Control Mode

EghtesadOnline: Automakers are putting measures in place to mitigate the impact of the upcoming sanctions imposed by the truculent US President Donald Trump in the wake of his underhand move to pull the country out of the historic nuclear deal with Iran.

News ID: ۷۸۲۹۶۰

18 June 2018

While the PSA Group begun to suspend its joint venture agreements with Iranian carmakers last week, the firm’s Citroen brand has announced the 2,000 presold small city hatchback C3s will be delivered to customers according to the arranged schedule without change.

The decision to go ahead with the delivery of the presold cars was announced through a blog post on the website dedicated to Citroen’s JV with SAIPA.

PSA Group made the announcement on June 4, saying it would suspend its JV activities in Iran if they could not obtain an exemption from the US sanctions, Financial Tribune reported.

Reportedly, South Korean automotive giant Hyundai is also facing headwinds in regard to its activities in Iran.

According to local auto blog Machine News, Hyundai’s local partner Kerman Motor has sent text messages to customers who have preordered Elantra, explaining that customers who have already made a down payment for the vehicle can choose to receive a refund or get another vehicle in place of the preordered model.

Customers will most likely go with the latter as recent forex fluctuations have reduced the value of the local currency.

PSA Group

Last week the French company made an official statement revealing they have started to suspend operations in Iran “in order to comply with US law by August 6, 2018.”

The firm has not burnt all bridges, stating that “with the support of the French government, the Group PSA is engaging with the US authorities to consider a waiver.”

SAIPA and PSA Group’s Citroen brand signed a 50-50 joint venture in late 2016 under which the Paris-based carmaker has undertaken to invest more than €300 million ($352 million) in Iran during the next five years. In addition to C3, another model of Citroen, namely, C4 would be produced in Iran if the company managed to secure a waiver from the looming US sanctions.

SAIPA-Citroen presold 2,000 units of the C3 in its initial offering in Iran in mid-May. Happy with the enthusiasm toward its products, the company had plans to launch further sales in the near future.

According to the recent announcement, the presold vehicles are set to be delivered to customers from August to November.

PSA Group’s Peugeot has also forged ties with Iranian carmaker Iran Khodro and production of Peugeot 2008 was launched in May 2017.

The Peugeot-IKCO joint venture named IKAP (Iran Khodro Automobiles Peugeot) was set to produce two other models bearing the emblem of Peugeot namely the hatchback 208 and the sedan 301 in Iran.

While IKAP has not informed customers about its strategy as of now, the impact of PSA’s suspension has manifested itself in a surge in the price of Peugeot 2008 in the local market. The mini sport utility vehicle is IKAP’s first product.

Following PSA Group’s statement, the Peugeot 2008’s price hiked from 1.55 billion rials ($36,900) to 1.8 billion rials ($42,850), a 16% jump in a short time span.

Parliament’s Scrutiny

The Iranian Parliament is investigating PSA Group’s recent move, searching for contract terms that would compensate for the loss incurred by Iranian automotive companies following the French company’s policy shift.

Industries Minister Mohammad Shariatmadari has been summoned by the parliamentarians and is required to appear before the Mine and Industries Commission to discuss the matter.

The secretary for Iran Auto Parts Manufacturers Association Farhad Behnia has also talked to reporters about the foreign manufacturer’s possible exit, saying auto part makers have invested heavily in platforms promised by the joint venture contract.

Behnia demands that the association be notified if the French company’s breach of the contract provides Iran with ways to compensate for the losses.

Hyundai

Under a joint venture signed in March 2017, Kerman Motor produces three Hyundai models namely i20, Accent and Elantra in the industrial city of Bam in the central Kerman Province.

Moreover, the South Korean company signed a production agreement with Kerman Motor in March 2017 to start the production of the Elantra on the local firm’s production lines.

With Hyundai leaving Iran’s market, Kerman Motor is looking for ways to help customers recoup losses either through cash schemes or by offering other vehicles.

Kerman Motor and its parent company Kerman Automotive Industrial Company have forged several joint ventures with Chinese carmakers such as JAC, Liffan, Geely and BYD which will give customers a wide range of products to choose from.

Companies Staying Put

German manufacturer Volkswagen has not yet announced whether the sanctions will impact its agreements with Iranian firm Mammut Khodro.

The German group, which owns 12 brands including VW, Porsche and Audi, says its sales rose 4.3% to 10.74 million units last year. In December alone sales rose by 8.5% to almost a million units.

With the company struggling to retain its foothold in the US auto market, after its emissions scandal, widely known as dieselgate, VW may opt to leave Iran on short notice.

Another German firm, Daimler, announced deals with Iran Khodro Diesel and Mammut Group to set up local production of Mercedes-Benz trucks and engines in January 2016. Industry insiders have speculated that Daimler is likely to preserve its Iran operations to a limited degree.

French carmaker Renault announced a €660 million deal in August 2017, with Industrial Development and Renovation Organization of Iran (IDRO) and Negin Khodro to set up a JV to produce 150,000 cars a year.

The manufacturer’s absence in the US market can serve as a motivation to stick to Iran’s market.

Chinese companies such as Brilliance Automotive, Chery, JAC and Liffan are seemingly holding on to Iran as well. The Chinese manufacturer’s share of the country’s market during the year which ended in March stood at 16%.