PSA Peugeot Citroen under pressure to enter Iranian market

Tehran, Oct 24, IRNA – Director of Iran Khoro Industrial Group Hashem Yeke Zare said on Sunday that French Peugeot Company is under pressure by its shareholders to enter Iranian market.
Zare told IRNA that Iran Khodro’s talks with Peugeot and several other major auto makers are going on their acceptance of Iran’s conditions for start of cooperation is of high importance.

He said foreign car manufacturers have no right to leave Iranian market for whatever reason, rather they should abide by all their commitments.
Shareholders of Peugeot have mounted pressure on Peugeot Citroen company for its failure to gain success in talks with Iran.

PSA Peugeot Citroën is eying 400,000 car sales in Iran and has already signed a distribution agreement to sell its luxury DS brand, as the French carmaker looks forward to an end to years of crippling Western sanctions.

The company, which sold nearly half a million cars a year in Iran before sanctions and was forced to pull out in 2012, is planning an aggressive re-entry and is in advanced talks with local groups such as Iran Khodro to produce and sell cars in Iran. “We are ready to invest. We can provide cash and technology to build modern cars in Iran for the local market,” Jean-Christophe Quémard, executive vice-president for Middle East and Africa, told the Financial Times.

In the longer term, Peugeot is even looking to turn Iran into a production base, exporting cars to the rest of the Middle East and Africa. “There is room for exports from Iran as well . . . we have big plans,” he said.

This comes after Iran and six world powers struck a deal to place permanent curbs on the country’s ambitious nuclear program in exchange for far-reaching sanctions relief.

Quémard said that the company was pursuing a “new business model” from before the sanctions, where they sold kit cars to Iran Khodro, which assembled and sold them locally.

The group now wants 50:50 joint ventures and is willing to spend money to build new factories and new platforms, as well as hand over technology to partners in return for a greater share of the upside.

“This model will be much more profitable in the long term as we can capture more value,” said Quémard. “In the short term, however, we will have to reinvest most of the profit back into the market.”

PSA has already signed a non-binding agreement with Iran Khodro to build cars together should sanctions be lifted, with Quémard saying that he wanted to build small cars in the so-called B-segment, which includes vehicles such as the Peugeot 208, and the compact C-segment, which includes the Peugeot 301.

Iran Khodro and PSA suffered a blow to their relationship when the sanctions hit in 2012, with the Iranian group feeling abandoned and, suddenly starved of parts, was forced overnight to source from elsewhere.

Iran Khodro then continued to sell Peugeot branded cars — 300,000 last year according to registration data — with other parts and without paying any royalties.

Quémard said he hoped to start a new chapter in relations with the Iranian company, and there would be no legal action taken against it. “We can’t look to the past, we have to look to the future of our relationship.”

The one binding agreement that has been signed so far is with a “private group” to distribute the group’s luxury DS brand cars, with PSA Group planning to launch three of the six existing models in Iran before the end of the year.

The company is planning to hit sales of 400,000 cars in Iran between 2020 and 2025, said Mr Quémard, although this would likely be closer to 2020.
Peugeot is not the only car manufacturer attempting to get into the Iranian market, however, with Chinese groups in particular being very active, but Quémard says that he is not worried.

“What we have seen is that customers are not very happy [in Iran] with the Chinese offer, for reasons of reliability and servicing,” he said. “I don’t underestimate the Chinese carmakers, but that’s a fact.”

Analysts have raised concerns about the supply chain in Iran, with as many as 2000 local suppliers having gone bust due to the economic turmoil caused by the sanctions.

Quémard said that while rapidly ramping up production there will “not be a piece of cake”, he is still confident that their cars there will be 70 per cent locally sourced “in a very short time”.