French carmakers poised to re-enter Iranian market

The French car industry is in line for a cash windfall as well as the opportunity to reclaim its once dominant standing in the Iranian market following a thawing of relations between Tehran and the international community.

Renault was selling nearly 100,000 cars a year in Iran before sanctions came into force in 2012, but was forced to leave around €200m worth of local currency in bank accounts in the country after being informed that cars would fall under the new sanctions.

The French group, which sells kit cars to local assemblers, is also thought to be owed a significant amount of money in contracts from local companies for parts already delivered before the sanctions were implemented.

It took a €512m writedown on its Iran operations in June this year.

Renault is hopeful that it can win back a large part of the market share it once had in the Iranian car market, where total sales hit 1.6m in 2011.

Two weeks ago Iran agreed to limit its nuclear programme in exchange for an easing of these tough sanctions. Restrictions on goods, including auto parts, will be relaxed in January for six months while negotiations with the US and other world powers continue.

The car companies join a number of other groups in pharmaceutical, medical and agricultural sectors eyeing new Iranian markets. Oil companies are hoping that easing restrictions will allow them to tap the country’s large oil reserves.

French automakers are cautious, however, as the success of the next round of talks will determine whether the sanctions on auto parts and other goods are permanently lifted, and also whether financial sanctions are relaxed allowing money transfers back to France.

“There is a lot of diplomacy still at work,” Dominique Thormann, chief financial officer of Renault told the Financial Times. “Clearly the outlook compared to a year ago . . . looks more positive today.”

“What we were doing previously could be restarted. If all of that [sanctions] is lifted, presumably business will start just as we left it,” he said.

Rival French carmaker PSA Peugeot Citroën, which sold 458,000 cars in Iran in 2011, accounting for nearly a third of the total market, is also poised to return to the country, which was once its second largest market after France.

Jean-Baptiste de Chatillon, Peugeot’s chief financial officer, said last year that the sanctions had cut €10m a month from operating profit. The sum would be a welcome boost for a group with an operating loss of €48m a month in 2012.

“We welcome the positive results from the negotiations in Geneva, which could lead to the suspension of sanctions, and we will now await further developments,” said a spokesperson for Peugeot.

The opportunity to move back into a new foreign market comes as both Peugeot and Renault are pushing to expand their international presence in a bid to cope with the worst European car market for two decades.

Most foreign cars sold in Iran are assembled by local companies in partnership with global carmakers. The leading manufacturer, Iran Khodro, has joint ventures with Peugeot, Renault and Suzuki while Saipa builds cars under license from Kia, Renault and Nissan.

By Financial Times

 

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