Weekly News Review | 11 July 2016 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Iran back in business

PSA Peugeot Citroen has recently become the first foreign company to invest back in Iran, since economic sanctions (nuclear accord) were lifted at the beginning of last year. The global automaker has ‘renewed’ its joint-venture with Iran Khodro, which will act as a defibrillator to the region. The €400 million joint-venture - and reunion - will start to sell vehicles by February next year and production targets look to surpass 200,000 vehicles a year by 2018, foreshadowing a promising future for Iran’s revived automotive industry.

So now it’s time for Iran to make its comeback and boost the automotive market within the Middle East and Africa, attracting as much investment from external manufacturers and suppliers as possible. The country also has the potential, given its geographical position, to develop into a global hub for exports out of the region, through larger, cheaper workforces than neighbouring continents. PSA will manufacture the Peugeot 208, the 2008 SUV and the 301, sourcing the majority of parts from within the country which will boost jobs throughout the industry. On top of this, around 30% of the vehicles manufactured will be exported to the Middle East and out to further regions, showing encouraging signs that PSA will once again thrive in its second-largest market.

According to reports, there are also a number of joint-ventures in development, including Mercedes, who have been in talks since the sanctions were lifted. This highlights the desire of foreign automakers, who understand that Iran is one of the most promising growth markets for the automotive industry, with middle-class Iranians desperate for the introduction of new models. Although revitalising the market, Iran may see a rise in revenue from car import tariffs, which are currently under review by parliament. This budget forecasts $726.6 million in revenue from import tariffs, a significant increase from $451.8 million in 2015. Yes, there is demand for new desirable cars but, in the wider perspective, overall demand for expensive cars has declined. In response to this, Iran needs to allow more affordable cars to be imported, to cater to the entire country.

The automotive industry in Iran will experience a colossal change in structure and it is important that it doesn’t suppress its own manufacturers under the foot of global powerhouses. Indeed, we can already see that the introduction of external manufacturers has breathed new life into Iranian suppliers and other companies working within the industry, though I would not be surprised to see tier-suppliers following OEMs into the region. Iran is in an extremely promising position, but must be careful not to fall on it’s own sword.

Alex Kreetzer

Alex Kreetzer - News Editor

Simon Duval Smith

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