A new study published in the United States has offered a prediction for the future of the Iranian automotive market.
The report prepared by Research and Markets points out the challenges facing the Iranian automotive sector and future areas of growth. It notes that in light of the recent nuclear agreement between the P5+1 countries and Iran, the market for Iranian cars will continue to open up to new possibilities.
As sanctions are removed on the local economy, opportunities and challenges will be far greater issues in the long run, with annual return on investment likely to increase with significant hardware and infrastructure upgrades, the study said.
The report suggests that import duties and carmakers are likely to radically shift the market into new directions. This is backed up by recent announcements by Renault and Volkswagen, which announced in the past month they wish to enter the local market with full force.
Key findings in the report declare that when the sanctions are lifted in early 2016, normal business channels and practices will resume throughout that year. The process of reintegration is also likely to ramp up throughout the intervening years, as more direct investment flows into the country.
The Iranian auto market is likely to regain its former momentum, as competition increases and a wider range of vehicles enter, it said.
The report adds that as Iran has had to create an entirely indigenous parts industry, it has been at the cost of quality and reliability. It suggests that there is space for foreign firms in the after-sales market and that they “are the need of the hour”.
Iran, due to the sanctions placed on its economy has had to quickly produce a wide array of car parts. The issue, which was recently raised in the local press, suggests that certain cars, like the Saipa Pride, were the worst offenders in this respect.
In addition to these points, the report suggests that Asian and European car suppliers, which have deals to build different vehicles currently, are the key players likely to take advantage of the current dearth of international car producers in the Iranian market.
It noted that brands like France’s Renault and Japan’s Mazda have had good ties with Iranian producers and assemblers, and can build on this. In the short term (up to four years), foreign carmakers will import completely knocked-down and semi knocked-down kits in the mid segment and completely built units in the premium segment to gain presence in Iran.
It goes on to say these European and East Asian players are likely to take a far more commanding role with Iranian regulators, as the need for quality localization of their vehicle parts is high. This is likely to give local parts producers and carmakers alike the broad range of products at international levels that are worth exporting.
If the local auto producers can attain high quality parts through local fabrication, then the export market for Iranian assembled cars would likely see a huge upswing in demand as the vehicles produced now match European quality.
The report, however, does not mention the leading role of Chinese auto companies in the local market. Recent research carried out by the Financial Tribune suggests Chinese automotive manufacturing companies, along with their supporting parts players, are keen to increase their offerings in the local market, in part due to their new deals with producers like Iran Khodro and Saipa.
Earlier this week, IKCO joined the ranks of local players entering into joint ventures with international companies with the announcement of their new Haima S7 SUV. This vehicle is notable for being the first SUV the major producer has targeted. It also notes the start of a new chapter in joint Chinese-Iranian cooperation on large-scale auto manufacturing.