PSA and Renault reap strategic gains from Iran’s car market

With its competitors stalling in fear of U.S. sanctions, PSA and Renault in a swift calculated move have grabbed market share in Iran’s booming car market and have secured contracts to boost production deals.

French car manufacturing companies such as Renault and PSA have made significant inroads in the Iranian car market.

Despite their diminutive U.S. profile by focusing on the resurgent Iranian market, which is still off-limits to its foreign rivals who are fearful of sanctions from U.S. President Donald Trump’s administration, the investments sunk in by these French companies have made it into Iranian President Hassan Rouhani re-election plank as evidence, that his economic pursuits will bare well for the Iranian economy.

Ever since international sanctions were partially lifted by world powers, PSA and Renault have focused on Iran. PSA has signed production deals worth $768 million (700 million euros) while Renault has announced a new plant investment to increase its production capacity to 350,000 vehicles a year.

Both companies, unlike their German, Japanese and American competitors do not manufacture or sell in the U.S. What might appear to be a weakness to some, they have leveraged it to a strategic advantage which has made them less vulnerable to U.S. sanctions which are still partially in force.

With Donald Trump, a consistent critic of the U.S-Iran nuclear deal, assuming office in the U.S., there has been greater caution among large American car manufacturers to pursue the French in Iran.

As per industry sources, Volkswagen and BMW have put their Iranian ambitions on hold.

“We’re well aware of the market potential in Iran but we can’t afford to take any risks,” said a source close to VW.

VW declined to comment on specific investment discussions.

Although PSA and Renault declined to comment on their Iranian businesses, PSA’s Middle East chief Jean-Christophe Quemard however had stated earlier this year that U.S. pressure under Trump was helpful for the company to stay ahead of its foreign rivals.

“This is our opportunity to accelerate,” he added. “We’ve opened up a lead and we plan to hold on to it.”

With Iran’s market being deprived of technological developments for years, the potential for early movers to win big is huge. Furthermore, Iran’s significant import duties favour locally built cars, as a result Iranian car sales have jumped by 50% in the first quarter of 2017, as IHS Automotive, a data provider.

Mehdi Monfared, a Iranian car salesman, he witnessed an “explosion” in the demand for cars in in recent months.

“People are being less careful with their money and are spending their savings on cars,” said Monfared. “And the banks are lending.”

“When we signed the nuclear deal, critics said it was just a piece of paper that would never be implemented,”, said Iranian President Hassan Rouhani whose main challenger is a hardline cleric opposed to opening up the Iranian economy to foreign players. “But now we can see that auto industry sanctions have been lifted, joint venture agreements concluded and a new car is being built.”

Renault and PSA have moved swiftly to secure new production deals to upgrade their pre-sanctions partnerships with Iran Khodro and SAIPA.

PSA plans to add more Peugeot and Citroen models in coming months, while Renault has introduced its Sandero compact alongside the Tondar sedan.

($1 = 0.9111 euros)

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