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| Foreign carmakers jostle for position in Iran | Foreign carmakers jostle for position in Iran |
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| Days after Iran's nuclear agreement with world powers in Geneva last month, an international group of businessmen ascended to the upper floors of Tehran's 1,427-foot Milad Tower in hopes of striking a game-changing deal of a different kind. The object of their interest was the national car industry, a regional heavyweight that was abandoned by its traditional global partners after the United States began tightening its sanctions against the Islamic republic two years ago. | Days after Iran's nuclear agreement with world powers in Geneva last month, an international group of businessmen ascended to the upper floors of Tehran's 1,427-foot Milad Tower in hopes of striking a game-changing deal of a different kind. The object of their interest was the national car industry, a regional heavyweight that was abandoned by its traditional global partners after the United States began tightening its sanctions against the Islamic republic two years ago. |
| With an an agreement to ease sanctions on Iran's automotive industry in place, Iran Khodro - the largest national carmarker - may now choose from a spectrum of suitors bent on establishing themselves in one of the globe's last unsaturated auto markets. As the meeting unfolded, Iranian government representatives made it clear that the winning bidder must not only capture the hearts of Iran Khodro's private owners, but of Iranians themselves. | With an an agreement to ease sanctions on Iran's automotive industry in place, Iran Khodro - the largest national carmarker - may now choose from a spectrum of suitors bent on establishing themselves in one of the globe's last unsaturated auto markets. As the meeting unfolded, Iranian government representatives made it clear that the winning bidder must not only capture the hearts of Iran Khodro's private owners, but of Iranians themselves. |
| After years of life under sanctions that have destroyed their personal finances and isolated them from global markets, Iranian consumers find themselves in the spotlight of international trade talks. Global analysts describe the country as one of the most prospective destinations for automakers looking to invest in new emerging markets, highlighting growing demand as well as domestic production potential. But with purchasing power at a record low and structural barriers still in place, it remains uncertain whether the local consumer - the linchpin of any international cooperation - can live up to the expectations. | After years of life under sanctions that have destroyed their personal finances and isolated them from global markets, Iranian consumers find themselves in the spotlight of international trade talks. Global analysts describe the country as one of the most prospective destinations for automakers looking to invest in new emerging markets, highlighting growing demand as well as domestic production potential. But with purchasing power at a record low and structural barriers still in place, it remains uncertain whether the local consumer - the linchpin of any international cooperation - can live up to the expectations. |
| The Iranian car market is expected to climb to 1.5 million units per year by the year 2020, according to an October report by the Boston Consulting Group. Even under current economic conditions, this steady demand growth makes Iran the fastest-growing market in the Middle East and North Africa. In addition, foreign exporters looking to set up in the lucrative region may take advantage of the country's technological expertise, strategic location and low production costs. | The Iranian car market is expected to climb to 1.5 million units per year by the year 2020, according to an October report by the Boston Consulting Group. Even under current economic conditions, this steady demand growth makes Iran the fastest-growing market in the Middle East and North Africa. In addition, foreign exporters looking to set up in the lucrative region may take advantage of the country's technological expertise, strategic location and low production costs. |
| Currently, Iran Khodro has the capacity to produce about 1 million units each year, and has a history of manufacturing foreign automobiles on its assembly lines dating back to the early days of the beloved, boxy Paykan. Designed by the UK's Rootes Group, the vehicle catered to Iranians' need for a no-frills, affordable car in the late 1960s. Discontinued in the 1990s, the Paykan is still in wide use on Iranian roads, though often in eyebrow-raising stages of disrepair. | |
| The demand for a cheap, all-purpose car has only increased in recent years, especially as local carmakers struggle to balance the quality and price of current low and mid-range models as a result of sanctions. In a recent exchange with the consumer protection board, carmakers announced further price hikes for the Pride, a top-selling vehicle described by the police as the number one source of death on Iranian roads. | |
| "Access to cars is integral to the country's progress and the people's prosperity," Iran's first vice president Eshagh Jahangiri said at the 1 December event, according to a report by the reformist daily Shargh. | "Access to cars is integral to the country's progress and the people's prosperity," Iran's first vice president Eshagh Jahangiri said at the 1 December event, according to a report by the reformist daily Shargh. |
| Jahangiri emphasized that, after a half a century in operation, the country's automotive industry holds an integral position in the national economy. Its technological knowhow - a rarity in the MENA region - was effectively financed by local carowners, industry minister Mohammad Reza Nematzadeh continued. | Jahangiri emphasized that, after a half a century in operation, the country's automotive industry holds an integral position in the national economy. Its technological knowhow - a rarity in the MENA region - was effectively financed by local carowners, industry minister Mohammad Reza Nematzadeh continued. |
| "The customers are the benefactors of our production lines," he said. "If customers didn't buy cars, where would production be?" | "The customers are the benefactors of our production lines," he said. "If customers didn't buy cars, where would production be?" |
| Though one-on-one talks at the Milad Tower event were held behind closed doors, newspapers declared the French automakers Peugot and Renault the early winners of the negotiations. Both companies have collaborated with Iran Khodro in the past, exporting their vehicles for assembly in Iran, but withdrew from the country in 2012, citing fears of repercussions from US sanctions. The absence of the automakers, which previously accounted for over half of the automobiles sold in Iran, created a serious supply deficit in the local market and impacted the price of foreign-made automobiles both new and used. | Though one-on-one talks at the Milad Tower event were held behind closed doors, newspapers declared the French automakers Peugot and Renault the early winners of the negotiations. Both companies have collaborated with Iran Khodro in the past, exporting their vehicles for assembly in Iran, but withdrew from the country in 2012, citing fears of repercussions from US sanctions. The absence of the automakers, which previously accounted for over half of the automobiles sold in Iran, created a serious supply deficit in the local market and impacted the price of foreign-made automobiles both new and used. |
| Reza, 68, who has owned a Peugot 206 for ten years, says the market price of the vehicle has tripled. In spite of its age, his car has a better reputation than the newer automobiles whose parts are both produced and assembled in Iran. "If you open the classifieds section of any newspaper, you'll see ads touting the advantages of the 'French model'," he says. | Reza, 68, who has owned a Peugot 206 for ten years, says the market price of the vehicle has tripled. In spite of its age, his car has a better reputation than the newer automobiles whose parts are both produced and assembled in Iran. "If you open the classifieds section of any newspaper, you'll see ads touting the advantages of the 'French model'," he says. |
| Another foreign automaker that may be vying for a slice of the Iranian market is General Motors. According to a report last month by the French daily Le Figaro, the recently bailed out US company has been courting Iran Khodro for the past two years, though GM representatives subsequently denied the claim. While it hasn't operated in the country for over three decades, the automaker may be hoping to capitalize on its historic presence in the market as well as low fuel costs and the local recognition of American brands. | Another foreign automaker that may be vying for a slice of the Iranian market is General Motors. According to a report last month by the French daily Le Figaro, the recently bailed out US company has been courting Iran Khodro for the past two years, though GM representatives subsequently denied the claim. While it hasn't operated in the country for over three decades, the automaker may be hoping to capitalize on its historic presence in the market as well as low fuel costs and the local recognition of American brands. |
| Whoever succeeds in securing a local niche will likely be required to contribute significant energy and resources to the Iranian economy. During the initial stages of trade talks, Iran's representatives have signaled that exporting car parts and selling local branding rights to Iran Khodro - Peugot's previous modus operandi - would no longer suffice. However, the sanctions regime has left the Iranian business environment structurally isolated from the international community, posing significant bureaucratic obstacles for foreign investors. | Whoever succeeds in securing a local niche will likely be required to contribute significant energy and resources to the Iranian economy. During the initial stages of trade talks, Iran's representatives have signaled that exporting car parts and selling local branding rights to Iran Khodro - Peugot's previous modus operandi - would no longer suffice. However, the sanctions regime has left the Iranian business environment structurally isolated from the international community, posing significant bureaucratic obstacles for foreign investors. |
| Yet perhaps the most significant variable is the economic wellbeing of Iranian consumers, particularly the middle class, described by analysts as the most prospective market segment. Amid the downward economic spiral of the past decade, middle class families have found it increasingly difficult to afford the products targeted to their consumption. In a country where the average monthly wage is $300-400, the relatively low-quality Pride - currently priced at $6,000 and still climbing - remains out of reach for many households. | Yet perhaps the most significant variable is the economic wellbeing of Iranian consumers, particularly the middle class, described by analysts as the most prospective market segment. Amid the downward economic spiral of the past decade, middle class families have found it increasingly difficult to afford the products targeted to their consumption. In a country where the average monthly wage is $300-400, the relatively low-quality Pride - currently priced at $6,000 and still climbing - remains out of reach for many households. |
| "Ten years ago, everyone could afford a Pride, but now the price range is unaffordable for ordinary people," said Reza. | "Ten years ago, everyone could afford a Pride, but now the price range is unaffordable for ordinary people," said Reza. |
| There was a time, 60-year old housewife Azam recalls, when foreign brands were available to much of the population, and when ordering consumer products from European magazines was a commonplace practice. In her view, it will be years before the promised economic recovery reflects on jobs and wages, allaying the blaring inequality visible on Iranian roads today. | There was a time, 60-year old housewife Azam recalls, when foreign brands were available to much of the population, and when ordering consumer products from European magazines was a commonplace practice. In her view, it will be years before the promised economic recovery reflects on jobs and wages, allaying the blaring inequality visible on Iranian roads today. |
| "Back when the Paykan first hit the market, it was something very suitable, something everyone could buy and drive," she recalls. "Now, we see great disparity on the roads - from 30-year-old junkyard finds to brand-new imported sports cars. It will take time to fix these things." | "Back when the Paykan first hit the market, it was something very suitable, something everyone could buy and drive," she recalls. "Now, we see great disparity on the roads - from 30-year-old junkyard finds to brand-new imported sports cars. It will take time to fix these things." |
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