The Iranian Foreign Minister Mohammad Javad Zarif became an overnight hero for leading the Iranian delegation that sealed a deal in Vienna. Even before an official announcement was out, businesses around the world were analyzing what this would mean for them. Sadly, this means little for American businesses, though America led the negotiations. American companies could continue to be left out of Iran unless there is further directive on the US governments’ executive order preventing business with Iran.
American companies are evaluating business opportunities across key industries, including the white goods industry, Iran’s commercial oil and gas exploration, or its aging commercial airline fleet (bringing cheer to Boeing) as civil aviation is not banned in the US executive orders. However, the biggest untapped market is Iran’s educated middle-class population, which is eager to have the best of what the rest of the world offers, and cars are at the top of the list.
Here are some facts to put Iran’s automotive appetite into perspective: over 985,000 passenger vehicles were sold in 2014; the country also executed a “vehicle scrappage” program to discard aged vehicles from its roads and converted all public cars to run on compressed natural gas (this was interesting because oil is cheap and in abundance). Notwithstanding the economic sanctions, Iran is the largest automotive market in the Middle East and roughly one-third the market size of Germany. These sanctions have, in a way, contributed to Iran becoming almost self-reliant in automotive production by means of advancement of Iranian manufacturers like IKCO and SAIPA, which are now local stalwarts in the industry.
With the sanctions expected to be lifted, Iran is back on the radar of Western automotive companies as Iranians look forward to a refreshed car lineup. European companies Renault SA and Peugeot were the key international automotive companies in Iran, until the 2012 round of economic sanctions forced them out of the country. Very quickly the Chinese automobile manufacturers filled the void left by the Europeans. Chery, Lifan and Changan are some of the Chinese car brands that are gaining popularity in Iran. This Chinese car invasion clearly draws the battle lines between the Chinese OEMs, which have a foothold on the Iranian market; the European OEMs, which have been business partners in the past; and other Asian OEMs that would like to expand their presence in the Middle East. So where are the Western car companies now? Considering Chinese talk in the market, they have a lot to do to catch up.
The most preferred type of car in Iran has been roomy sedans, comfortable for long drives. Renault is expected to launch its recently showcased mini-crossover Kwid in Iran, as Iran’s basic car segment begins to evolve with similar offerings from other competitors aimed at Millennials. The small-car segment, which is virtually non-existent in Iran, is expected to sell over 250,000 cars annually in 2022 as per Frost & Sullivan research, driven by the urban middle class. The overall passenger vehicle market is expected to grow to 2.3 million units by 2022, more than double from its current numbers.
Under the present leadership, Iran is more liberal and business friendly. Iran has reduced direct government involvement in the automobile industry and even reduced import tariffs of hybrid vehicles to just 4%. According to the recent data from Iran’s Customs Administration, import of hybrid cars increased by 112% and import of knock-down parts for car assembly grew 57%. This surprising data is a clear sign that the government is open to having foreign participation in the Iranian auto industry, and foreign participation is gaining pace.
Partnering with a local company is a regulatory requirement in Iran. European and Chinese OEMs are already partnering with influential Iranian automotive business houses that could draft and shape future regulations to favor them. As the Iranian currency is undervalued and companies are cash strapped, there are some amazing business deals at attractive valuations to be made.
As manufacturers make a beeline to Teheran’s influential Sadeghiyeh district, America must act before it is left to pick up the crumbs, like how Ford Motor had to do with China. It is important that American automotive companies and policymakers pay attention to the benefits of being a part of this growth story they helped script in Vienna.
Thanks to Isaac Abraham – Frost & Sullivan Industry Analyst, Automotive & Transportation Practice, for his regional contributions.
From: Forbes