Iran carmakers ready for recovery image

Iran’s auto industry may offer President Hassan Rouhani the best prospect of a rapid peace dividend from his nuclear accord with world powers.

Output at Iran Khodro Co., which makes the Runna and Dena models, and other local carmakers, slumped after sanctions made it harder to get parts from abroad. The restrictions are set to ease under the nuclear accord reached in Geneva last month. Companies including Renault SA showed up at an auto industry event in Tehran as they gear up to do business again with the Islamic Republic.

Investment in the auto industry “yields results fast, within a few months it can contribute to GDP growth,” said Saeed Laylaz, a former economist at the Ministry of Industries and Mines. Removing sanctions will raise the carmakers’ potential output by 20 % if their foreign partners return to the country, and help them create 600,000 jobs, he said. Obstacles include surging prices that have deterred buyers.

Led by Iran Khodro and SAIPA, Iran’s car industry employed about 2 million people at its peak two years ago, out of a population of 80 million. It produced 1.6 million vehicles and generated about 3.5 % of Iran’s $500 billion economy.

At Iran Khodro, production has dropped by about 30 % as the company struggles to obtain the parts it needs, according to an executive who asked not to be identified because he’s not authorized to talk to the media. It will take at least a year to return to pre-sanctions levels, and the company will need to sign new deals with partners and be allowed to set prices freely, he said.

Prices surged as governmental controls loosened, and a typical car now costs more than twice as much as two years ago. The manufacturers can’t cut prices in the near term, and may even need to raise them, the Iran Khodro executive said. That may clash with public expectations, because Iranians expect prices to drop as a result of the sanctions deal, and could postpone buying cars till they see that happen, Donya-e-Eqtesad newspaper reported Dec. 3 in a survey of the industry.

Renault is still waiting for “clarifications” on the new sanctions regime, expected next month, before restarting sales of car parts to Iran, Gilles Normand, head of the Asia-Pacific region at the French carmaker, said in an interview at the Tehran conference.

Via Bloomberg