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Iran Autos Report Q4 2008 (Business
Monitor International)
www.companiesandmarkets.com
Market: Automotive and Parts
Published Date: 02/10/2008
Market Research Report Title: Iran Autos Report Q4 2008
Table of Contents:
View
Report Type: Market Report
Country: Iran
Number of Pages: 69 |
Summary: Iran's state-dominated investment
climate will continue to suffer from economic sanctions, a problem that will
soon start to weigh on long-term growth in the automotive sector according to
BMI's latest Iran Automotives Report. The business environment continues to be
adversely affected by the uncertain political backdrop and international
sanctions. Like other sectors, the automotive industry is suffering from a lack
of foreign direct investment (FDI) and capital imports. The privatisation
process is moving extremely slowly, while Iran looks set to face a summer of
power shortages, a result of a lack of diversity in power-generation
International sanctions, high inflation, exacerbated by fuel price hikes, and
dampened consumer demand have depressed growth in the passenger car segment, but
industrial growth coupled with infrastructural development is spurring demand in
the commercial vehicles segment. BMI believes the Iranian automotive market will
contract in the 2008/09 Iranian year (running from 20 March) and that annual
domestic sales are unlikely to exceed 1mn units over the next five years. BMI
expects overall sales to fall by 7.4% to just under 960,300 units in 2008 and
will not be significantly higher than this by 2012
The downturn in the market will have a negative impact on production, owing to
manufacturers' heavy dependence on domestic sales. The situation will vary
across models, depending on the level of local content, with the commercial
vehicle segment the most insulated from external shocks. With the Iranian market
stagnating, growth will depend almost entirely on exports. Carmakers have come
to realise the importance of external markets and are seeking export
opportunities both for CBUs and CKD kits supplied to assembly lines, mostly for
Iran Khodro's Samand model, which is assembled from at least 80% Iranian-made
parts. The opening of the country's largest car assembly plant in Khorassan in
July 2008 will increase automotive capacity with the ability to turn out 100,000
vehicles per annum by end- 2008/09, However, it will not necessarily increase
production. BMI is not convinced the demand exists in either domestic or export
markets to lift output to full capacity. Export opportunities are restricted to
relatively low volumes. Nevertheless, they should help push up output to 1.13mn
units by 2012
The decline in automotive production is likely to be sustained due to the impact
of UN and US sanctions, which are aimed at forcing Iran to give up its nuclear
programme. Sanctions have raised the risk premium for international financing,
with borrowing rates now 15% or more in comparison with 2% in the presanctions
era, and as a result businesses are looking to the central bank, flush with oil
revenues, to raise funds. However, as a result of the sanctions covering
dual-use technologies and the failure to provide letters of credit due to US
pressure on European banks, Iranian carmakers are struggling to import parts
from Europe. The high level of risk means that foreign majors are unlikely to
seek further involvement in the Iranian automotive industry. Although Italian
carmaker Fiat's announcement in July 2008 of plans to begin production of its
Siena sedan in Iran later in 2008 may be portrayed by the government that the
car industry is still able to shake off US attempts to isolate the country, the
project is at least three years overdue and there is no guarantee that
production will start in the immediate future
Iran scores 41.3 points (out of a theoretical maximum of 100) in the BMI
automotive business environment rating this quarter, putting it eighth place,
0.7 points ahead of Nigeria and 5.6 points behind Egypt. Iran may have the
largest automotive market in the region, but its ratings have suffered greatly
as a result of UN and US sanctions. With serious structural deficiencies in the
economy and the heavy protection of the car market unlikely to be change in the
forecast period, the only hope Iran has of raising its score is to ensure growth
in automotive output. This is contingent on an easing or lifting of sanctions
related to dual-use technology that is used in both the automotive and nuclear
industries and seeking new avenues of finance and investment to bypass US
sanctions
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