Features
13 Aug 18

Daimler and PSA abandon Iran – but Renault is staying

Daimler has joined the list of OEMs abandoning its plans for expansion in Iran, which is about to be subjected to renewed U.S. sanctions. Earlier, PSA had announced its withdrawal from the Islamic Republic – but Renault insists it's staying. 

The United States first instituted its “unprecedented” sanctions against Iran in 2010, amidst escalating tensions over Teheran's nuclear programme. Under the terms of those sanctions, even non-American companies exposed themselves to huge fines in the U.S. if they continued doing business in Iran. 

Pent-up demand
Those sanctions were repealed in 2016, following the 2015 international accord to halt and monitor Iran's nuclear activities. Automotive companies rushed in to fulfil years of pent-up demand for new vehicles. 

Almost immediately, French automaker PSA set up joint ventures with Iran Khodro and Saipa to sell its Peugeot and Citroën vehicles in Iran. In 2017, PSA sold nearly 445,000 vehicles in Iran, making it one of its main markets outside France.

But following Trump's announcement in May that he would withdraw from the international accord and re-instate the sanctions against Iran, PSA reversed course. In July, it announced that it would pull out of both joint ventures, to avoid being hit by U.S. sanctions, which will enter into effect from November. By early August, PSA's disengagement from Iran was complete.

European governments
Clearly, PSA is unimpressed by the reassurances of European governments, eager to save the nuclear accord with Iran, that they will protect their companies with business interests in the Islamic republic from the reach of U.S. sanctions. The Trump administration does not seem inclined to be lenient towards companies it sees as sanction-breakers. 

Total, the French oil company hoping to develop a $2-billion natural gas project in Iran's South Pars region, was exploring the option of gaining an exemption from U.S. sanctions, but admitted that the chances of that happening were “very slim”. It will be leaving the country.

Other companies that have announced they're (again) quitting Iran include shipping group Maersk, U.S. aircraft maker Boeing and sports goods manufacturer Nike – which has stopped supplying Iran's national football team. 

Puzzling pliancy
PSA's pliancy seems puzzling at first: despite being Europe's second-largest automaker, it has been absent from the U.S. market since 1991. But there's always the prospect of future business, and in January PSA said it would like to set up a car-sharing service in a number of North American cities.

Faced with the choice between real sales in Iran and future business in the U.S., PSA is opting for the latter – not that strange, given the difference in economic importance between the U.S. (still the world's #1 economy, with a GDP of more than $19 trillion) and Iran (#27, with a GDP of $432 billion – less than Belgium).

Letting its Iranian business go is not too much of a loss for PSA: the country represents less than 1% of PSA's total sales. Exiting Iran will not even require PSA to adjust its financial guidance to investors.

Further notice
Daimler has now also suspended its Iranian ambitions, “until further notice”. Granted, its losses are not as great as PSA: the German OEM had sold Mercedes-Benz cars and vans in Iran until the first round of sanctions in 2010, but had not yet resumed either sale or production in the country. Further justifying its abandonment of Iran, Daimler said that Iran's automotive markets had been “weaker than expected”. 

The timing of Daimler's announcement was not coincidental: the first wave of American sanctions against Iran went into effect last week, with U.S. officials stating that “nearly 100 international firms have announced their intent to leave the Iranian market”. 

Not everybody is leaving Iran, however. PSA's French rival Renault has announced that it will maintain its presence in Iran – while also taking measures to avoid U.S. penalties for breaking the renewed sanctions. 

“Watching closely”
“We will not abandon (Iran), even if we have to downsize very strongly”, Renault CEO Carlos Ghosn told the recent annual shareholders meeting in Paris. “When the market reopens, having stayed will certainly give us an advantage (…) We have a future in Iran”.

Last year, Renault sold 160,000 cars in Iran, out of a global total of 3.76 million. Like its rival PSA, Renault has no sales in the U.S., in its case since the 1980s. 

Ghosn said a Renault team is working with the U.S. administration to examine how to minimise the impact of American sanctions on Renault. “We will be watching closely to make sure our presence in Iran does not provoke direct or indirect reprisals by the Americans”, the CEO said.

 

Image: Tasnim News Agency, CC BY 4.0

Authored by: Frank Jacobs