US President Donald Trump has threatened to ban from the American market all companies that have business dealings with Iran.
His threat has virtually thrown a monkey wrench into aggressive plans by major European automakers to expand their business in Iran.
Iran is a superpower in the Middle East when it comes to car production, its sales volume reaching more than 1.5 million units in 2015 alone.
For decades, however, the Iranian auto market was pretty much sealed off from the outside world. All foreign vehicles were subject to a 100 percent import tax.
As a result, vehicles produced by Khodro and Saipa, Iran’s two leading automakers, accounted for over 90 percent of all the cars on the road in the country.
Things began to change in 2006, when the Iranian government slightly lowered the tax on imported small cars by 10 percent, thereby attracting several foreign car manufacturers such as the French PSA Group to embark on joint ventures with Iranian counterparts.
Yet it wasn’t until after then US President Barack Obama concluded a nuclear deal with Tehran that European carmakers started seeking to conquer the Iranian auto market.
Among them, PSA was the most aggressive and successful one. One of its brands, Peugeot, became the best seller in Iran in 2014.
Given that Americans and Europeans have different tastes in cars, the US market has long been regarded by European automakers as insignificant, except for luxury brands such as Mercedes-Benz and BMW.
By comparison, the emerging Iranian market has a lot more potential and a much better growth outlook.
However, since nowadays many European automakers are no longer purely car manufacturers, and have become diversified multinationals involved in a wide range of business fields, it is almost impossible for them not to have any business connections with American companies.
That being the case, if European automakers angered Trump, that could lead to incalculable consequences.
In order to return to the US market, the PSA had no choice but to terminate its joint business ventures with Khodro and Saipa and cancel its project to build production plants in Iran.
Meanwhile, Scania, the European truck manufacturer owned by Volkswagen, was also forced to give up the juicy Iranian market.
Whether European automakers can regain their share in the Iranian market depends pretty much on how talks between Washington and Tehran would play out.
Nonetheless, the longer the talks drag on, the more likely that Chinese car manufacturers would start filling the market vacuum in Iran. This is something that could happen soon.
This article appeared in the Hong Kong Economic Journal on Sept 7
Translation by Alan Lee
[Chinese version 中文版]
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