Iran Autos Report Q4 2012

Last quarter BMI revised down its production and sales estimates for Iran’s autos industry – despite totalvehicle output by Iran’s automakers increasing 2.4% year-on-year (y-o-y) to 1.64mn in the Iranian yearended March 19 2012 – owing to the withdrawal of many international companies from the country in thewake of global sanctions against its nuclear efforts,Iran’s auto industry continues to show mixed messages. As such, we have kept our sales and productionforecasts unchanged this quarter.

Iranian carmakers exported 21,985 cars worth US$123mn in the first four months of the Iranian calendaryear starting March 20. Key export markets were Iraq, Afghanistan, and Ukraine. The country plans toproduce at least 3mn cars and export 1mn cars by 2025. Around 1.6mn cars were produced and 55,000cars exported in the previous calendar year.

According to RFE/RL in August, Iran’s leading domestic firm Iran Khodro (IKCO) announced itexpects sales and exports to its main markets in Russia, the Middle East, South America and Africa to'boom' 45%. This is down to interest in its domestically made and designed ‘national' car, the Runa,unveiled in 2009. IKCO is also confident about its revamped sedan model, the Samand, which is exportedto Russia via an assembly plant in Belarus and also made in Iraq. IKCO intends to adopt new marketingstrategies in an effort to export 16% of its output in the coming three years and enhance its global marketshare. IKCO's ambitious export plans could be buoyed by the rapid development of alternative fuelvehicles, which may find a niche in markets where there is demand for green cars.

Despite this bullishness, sanctions are hitting Iran's domestic autos industry, which is the second largestsector in Iran, behind the oil and gas sector.

In July the Industry, Mines, and Commerce Ministry announced that overall domestic auto output fell36% in the first quarter of the Iranian year (March 21 to June 20) because of ‘lack of money’ to buyassembly parts. According to Bloomberg Business Week, Iran's Donya-e Eqtesad newspaper quotedMohammad Reza Najafimanesh, a union official, saying that Iran had to produce 2mn cars in the currentfinancial year, but was likely to make only around 1.5mn, which would amount to a 25% fall. The Tehrancar parts dealer Nasser Ahmadi said its sales have fallen 60%.

Iran’s industry, mine and trade minister Mehdi Ghazanfari has said IKCO and Iran's other major carmanufacturer Saipa are struggling to pay their debts to domestic parts makers. The ministry has given thefirms loans totalling 500 bn toumans to avoid unemployment for hundreds of thousands of workers inauto parts manufacturing plants. Ghazanfari warned around two million jobs were on the line if the autoparts manufacturing sector, and consequently car manufacturing as a whole, closed down. The MehrNews Agency says hundreds of car industry jobs have already been slashed across Iran.

The problems directly relate to PSA Peugeot Citroen's decision in March, following its tie-up withGeneral Motors Company, to stop supplying parts and assembly kits to Iran. The French firm had madeup around 40% of Iran's auto output through its tie-up with IKCO. In May, Italian carmaker Fiat alsosuspended sales to Iran, saying it would support 'the efforts of international diplomacy to find adiplomatic solution to the issues relating to Iran.'

The US lobby group United Against Nuclear Iran (UANI), which lobbied for an end to Peugeot'sinvolvement in Iran, is continuing its efforts to get foreign automakers out of Iran. It says that Isuzu, KiaMotors, Mazda Motor, Mitsubishi Motors, Nissan Motor, Peugeot, Renault, Suzuki Motor, ToyotaMotor and Volvo either export to the Islamic Republic or have manufacturing agreements with carcompanies controlled by the regime.

UANI launched its ‘Auto Campaign’ in March 2012, citing a BMI report into how the enforcement ofeconomic sanctions on Iran has resulted in the country's government prioritising the development of astrong domestic auto industry. UANI says in recent months, Hyundai Motor and Porsche have endedtheir business in Iran in response to its campaigns.