Will Renault Change the Game in Iran's Automotive Market?

The new contract with Renault was signed 10 months after the initial memorandum, but why did the negotiation process take so long and what will be the impact of this new contract on Iran's automotive market? Renault's contract with Iranian parties can be considered the most different contract in Iran's automotive industry to date, a contract that, if executed correctly, will somewhat change the equations of the Iranian market. More than 10 months after the initial agreement was signed at the 2016 Paris Motor Show, the largest investment contract in the history of Iran's automotive industry was signed between Renault of France and IDRO as the representative of the public sector in Iran, and the company 'Parto Negin Nasih' as the representative of the private sector. Initially, the Ministry of Industry, Mine and Trade sought to sign a contract between Renault and Saipa. This ministry tried to arrange the game so that Saipa would collaborate with Renault, and Peugeot would collaborate with Iran Khodro. However, Saipa was more inclined to cooperate with Chinese companies, and Renault wanted to be more independent in the Iranian market this time. Renault's current experience in the Iranian market and its collaboration with Saipa and Iran Khodro has taught the company valuable lessons. One of the most important lessons is that Saipa and Iran Khodro are trying to manage the market in an unwritten contract. Peyman Kargar, the former CEO of Renault Pars, stated that Saipa increased the price of the Renault Sandero by several million tomans to avoid problems in its Chinese product market. This situation was not favorable for Renault, as it caused the production volume of this vehicle to fall short of its target. After the Organization for the Development and Renovation of Industries of Iran entered the game and signed a cooperation memorandum with Renault at the Paris Motor Show, Iran Khodro and Saipa felt the danger. The Organization for the Development and Renovation of Industries of Iran was demanding from Saipa and requested the confiscation of the Benro company from the subsidiaries of Saipa in exchange for its claims. The Benro company was supposed to be considered in the memorandum in exchange for the contribution of the Organization for the Development to become the production center for new Renault products in Iran. However, Saipa, unhappy about being sidelined from the contract with Renault, had promised this site to its Chinese partner. One reason for the prolonged signing of the contract was this issue. Eventually, Saipa declared the value of the Benro company to be much higher than the claims of the Organization for the Development. On the other hand, there were pressures on the Organization for the Development that it had no right to have a 40% share in the production contract as a state unit. Ultimately, the main investor for importing Renault vehicles in Iran, the company 'Parto Negin Nasih', entered the game. The main owners of this company, apart from their activities in tower construction, have been active for years in importing Toyota and Lexus vehicles in Iran (through Irtoya), and for some time have had the representation of Renault for importing products from this company that are not produced in Iran through the Negin Khodro company. With the entry of the 'Parto Negin Nasih' company, several problems were effectively resolved. First of all, the necessary costs for transferring the Benro company were secured. By reducing the Organization for the Development's 40% share to 20%, pressure on this organization was alleviated, and on the other hand, a private Iranian company became Renault's partner for producing new products instead of the two state companies Iran Khodro and Saipa. Additionally, Renault can rely on the sales chain of Negin Khodro in Iran. According to this agreement, Renault will have distribution, sales, and after-sales service centers in Iran for the first time. This joint cooperation includes a new engineering and purchasing center to support domestic parts manufacturers and a production factory with an initial capacity of 150,000 units annually. This company will be active in research and development, purchasing and localization, vehicle production, and distribution and export within the distribution network and under Renault's standards in domestic and foreign markets. Mansour Moazami, head of the Organization for the Development and Renovation of Industries of Iran, IDRO, stated: 'The first phase of the contract with Renault, worth 660 million euros, is for the production of 150,000 vehicles, with the first production entering the market by late 1397; in the first phase, two products, 'New Duster' and 'New Symbol', will be produced domestically, with their design in the final stages and execution work beginning after delivery. The second phase will start in 2019 and will last three years, which has not yet been finalized.' He added that '60% of the shares belong to Renault and 40% belong to Iran, of which 20% belongs to IDRO, and the rest will be held by the private sector. According to this contract, 30% of the product must be exported under Renault's responsibility, including the final product and parts. The entry of IDRO is completely legal, as according to Article 44 of the Constitution, the government can hold a 20% market share; also, the government can relinquish its legal 20% share at any time. The 40% share of IDRO has been reduced to 20% since last year at the time of the contract signing, and this organization has spent more than 10 months executing and finalizing this contract.' However, what differentiates this contract from other contracts in Iran's automotive industry? In terms of foreign investment volume, this contract is one of the largest in the history of Iran's automotive industry (larger than the Peugeot and Citroen contracts), but the significant difference of this contract, compared to Peugeot's contract with Iran Khodro and Citroen's with Saipa, lies in the management method. In the Peugeot and Citroen contracts, project management is completely equal, while in Renault's contract with Iranian parties, management is with Renault. Some experts believe this factor will lead to Renault being strict about quality, resulting in Renault's produced vehicles in Iran having better quality. On the other hand, Renault is now independently present in the market, separate from Iran Khodro and Saipa. This type of presence will create competition in Iran's automotive market, a competition that will benefit consumers in Iran and disadvantage the two companies Saipa and Iran Khodro, which have grown in a greenhouse environment, far from competitive conditions. Nevertheless, some say that if there are obstacles like last time (the L90 project), the new Renault contract will not achieve its goals. On the other hand, some fear that Saipa and Iran Khodro will pressure the Organization for the Development through the Ministry of Industry, Mine and Trade to align the Organization's policies with those of these two companies in the Iranian market.