French Automakers Poised to Race Back Into Iran; Could Detroit Be Next?

Atta Kenare/AFP/Getty Images
By Laurence Frost and Marcus George

PARIS/DUBAI -- Peugeot and Renault are among Western firms sending executives to an automotive conference that opens in Iran on Saturday -- firing the starting gun on a more overt race for post-sanctions business.

The French carmakers are poised to resume vehicle sales in Iran, using a six-month easing of trade restrictions to reclaim their market position before the mass arrival of competitors behind any permanent detente that could follow.

Production by Iran's domestic car industry, unusually developed for the Middle East, peaked at 1.6 million cars in 2011, the year crippling new sanctions were introduced. Leading manufacturer Iran Khodro accounted for about half of that output.

Khodro and No.2 manufacturer SAIPA have a handful of foreign production partners -- including South Korea's Kia, Suzuki Motor Corp. and the two French manufacturers -- and exported some of their vehicles.

The conference in Tehran, planned before last weekend's Iran nuclear talks breakthrough, includes representatives of German, South Korean and Japanese manufacturers on its billing.

Volkswagen, Suzuki, Kia and affiliate Hyundai all denied Iranian media reports that they were to attend, but Renault and PSA Peugeot Citroen confirmed they were sending representatives.

In return for undertakings by Tehran to freeze key parts of its nuclear program, the so-called P5+1 powers agreed on Nov. 24 to a six-month suspension of trade sanctions on selected goods, including auto parts.

The easing, due to start by early January, is good news for the French, which until recently shipped semi-built cars to Iran as component "kits" for assembly by local partners Iran Khodro and SAIPA.

U.S. carmakers meanwhile remain barred from Iran by domestic rules including a trade embargo that is not subject to any immediate relief.

Positioning

In the event of a sustained diplomatic thaw, Iran has potential to be a profitable, fast-growing auto market soon exceeding 2 million vehicles annually, analysts say.

"There's enormous and immediate interest in Iran," said Thierry Coville, an Iran specialist at IRIS, a French international relations think-tank.

Sanctions relief on autos brings tangible benefits to ordinary Iranians that may help President Hassan Rouhani win domestic backing for further concessions underpinning a definitive nuclear deal in six months, Coville said.

"It will have a pretty swift impact in a sector that is a big source of Iranian jobs - so this is more than just symbolic."

More than 100,000 auto workers were laid off as sanctions hit Iran's biggest manufacturing industry, with plants now running below half capacity, according to official data.

Combined with the steadily rising average age of vehicles on Iran's roads, that spells enticing levels of replacement demand that could be unleashed if full market-opening were followed by the taming of inflation and a stronger rial.

Peugeot's 458,000 sales amounted to a 29 percent market share at the 2011 peak, while Renault claimed 5.9 percent of national registrations. Former President Mahmoud Ahmadinejad drove a Peugeot 504.

But the significant tightening of U.S.-led sanctions on the oil industry and financial transactions has eroded production to 292,000 cars in the first half of the current Persian year, which began in March.

Western carmakers appear to have been positioning themselves for months ahead of an anticipated reopening.

"We haven't been sitting on our hands," a source close to Renault said, adding that some Iranian production was ongoing from stocks of components that pre-date June's U.S. executive order halting parts shipments.

The French carmaker has been in talks for weeks on a resumption of deliveries, the source said.

Peugeot's situation is more complex because shipments have been halted for longer - since February 2012 - and because the Paris-based carmaker is pursuing a strategic alliance with 7 percent-shareholder General Motors.

Peugeot hopes an easing of sanctions will restore the 150 million euros ($204 million) they wiped from profit, finance chief Jean-Baptiste de Chatillon told analysts this week.

"We would need several weeks to start up these operations again," a company spokesman said. "But we're not there yet."

Peugeot insists it was financial sanctions that halted the trade, 14 months before Renault followed suit. But GM told investors it had received assurances that Peugeot would end Iran sales before approving their alliance.

U.S. Caution

The U.S. carmakers themselves may not be merely watching from the sidelines.

Ford and GM both deny knowledge of third-party importers that have sprung up in Iran to offer their vehicles online -- alongside those of other major carmakers.

But Ford has been identifying potential distribution partners in Iran so that it can "move quite quickly" when the time comes, a source with direct knowledge of the matter said.

The company "continues to follow all legal requirements expected under the current sanctions regime and will monitor the situation carefully", a Ford spokesman said, declining to comment on any preparations underway.

GM says it was not behind a recent Iranian advertising campaign for its cars, or a shipment of Chevrolet Camaros that arrived in the country earlier this year and were widely photographed by local media.

"We are a U.S. company and we adhere to U.S. laws and regulations as well as sanctions," a GM spokesman said. "That's why we don't have any dealings with Iran."

American carmakers, largely absent from Iran since the 1979 revolution, must tread with particular care to avoid riling the powerful U.S. pro-sanctions lobby or wider public opinion, still wary of the Islamic state's ambitions.

"Those who think it's open season on business in Iran are sorely mistaken," a U.S. Treasury spokesman said this week. The government still owns about 2 percent of GM, a legacy of its 2009 bailout.

Still, the French may not have carte blanche to reclaim their former share of business. One complication may arise from the tough line taken by Foreign Minister Laurent Fabius in the final phase of nuclear talks.

Days before the deal, Paris and Tehran traded barbs after France had dismissed an earlier draft as too soft, ending the previous round of negotiations.

French government officials play down the fallout.

"I don't think our intransigence has hurt us," said one diplomat. "I spent three days with the Iranians and I didn't sense they had any problem with us."

Even so, Iran's authorities may not want a return to business as usual.

Iran Khodro has said sanctions easing is an opportunity to add new production partners, diluting Peugeot and Renault.

Director general Hashem Yekeh Zareh also told Iran's IRNA news agency the company was seeking greater self-sufficiency to put it beyond the reach of any future trade restrictions.

"We must ensure that shortcomings in our previous relationships with global car manufacturers are not repeated," Zareh said, "so that issues such as sanctions cannot create challenges for the national car industry."

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geezerearl

A french built car thats a truly scary thought even 4 the Iranians.

December 01 2013 at 5:17 PM Report abuse rate up rate down Reply
John Hinckley

We had a Cadillac assembly plant in Teheran that assembled Sevilles until the Ayatollahs overthrew the Shah and took over the country, and nationalized the foreign-owned businesses and shut down those that they considered ostentatious and not in keeping with Muslim beliefs. However, they kept the Seville assembly plant running until ALL the Ayatollahs had their Cadillacs, THEN they shut it down. Now they're all millionaire hypocrites.

December 01 2013 at 11:18 AM Report abuse +2 rate up rate down Reply
IRVING

No matter what happens " business is business," has always been the motto of American business leaders. Their zeal however has always paled in comparison to the French, the ****** of world economics. Before the negotiators fill up their pens to sign a deal everyone can live with, French industry has their noses stuck...

December 01 2013 at 7:30 AM Report abuse -1 rate up rate down Reply
balugablue21

well why not they got all that free money from the gov't and screwed their retires

December 01 2013 at 6:09 AM Report abuse -3 rate up rate down Reply
mulepick

Look at a recent NYT article. Detroit moved 15 years ago w/NAFTA to central Mexico where there are now plenty of good jobs, new universities, and great new opportunities. Perot was right, Clinton and Obama were wrong and the American middle class pays.

December 01 2013 at 2:27 AM Report abuse -1 rate up rate down Reply
1 reply to mulepick's comment
tjstieg

Amen!

December 01 2013 at 5:53 PM Report abuse -1 rate up rate down Reply
burgesswv

this could open the door to other countrys that have their own fuel supplys (oil). getting into the bigger costler cars. T hey would escape the impositions like we have here in America ; tighter f uel users,smaller cars

November 30 2013 at 9:47 PM Report abuse -2 rate up rate down Reply
skjuice

"Gotta" be a good move for the French.... sell one of those junkers they build and within 48 hrs. its blown up.. and you have a recyclable customer .. ready for more scrap iron....Simply Marketing Genius....

November 30 2013 at 8:05 PM Report abuse rate up rate down Reply
YourFtr

Doesn't this look 'Cheesey' after everyone is negotiating the end of some sanctions...!??

November 30 2013 at 7:52 PM Report abuse -1 rate up rate down Reply
kensucharski

Car bombs in the Middle East force manufacturers to build closer to home.

November 30 2013 at 6:32 PM Report abuse -2 rate up rate down Reply
karmarind

They will sel the cars cheap, as the cars computer will be LOADED with NSA tracking gear, along with audio listening and transmitting capabilities. Plus they will probably give, yes give, Cadillacs and the GMC SUV's to high ranking clerics. LOL Then they will listen to conversations. The cars will all have radiation detection devices. Any nuke materials will set that off. All the info will be transmitted back to NSA via onstar. Anyway, that's what some of my ex co-workers at NSA have revealed to me.

November 30 2013 at 6:02 PM Report abuse -3 rate up rate down Reply
1 reply to karmarind's comment
dweeeb.buster

The NSA certainly hires mouth-breathing knuckle-draggers.

Just not ones as dumb as you.

November 30 2013 at 8:59 PM Report abuse -3 rate up rate down Reply