Will French Carmakers rev up Iran’s Auto Industry?

By Alireza Ramezani, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.

In his first trip abroad following the Jan. 16 implementation day of the Joint Comprehensive Plan of Action, Iran’s President Hassan Rouhani toured Italy and France, where he signed major deals with Airbus SAS as well as PSA Peugeot Citroen and Renault SA. The Airbus deal, which has yet to be finalized, will create a new market for the European passenger jet consortium as Tehran is moving to procure 118 aircraft.

The Airbus deal will help Iran renew its aging air fleet, as the decades-long embargo on its aviation industry has officially come to an end. The auto agreements are aimed at reviving Iran’s embattled vehicle manufacturers. Indeed, the resumption of Iran’s partnership with the French automakers is geared toward stimulating domestic demand and improving employment prospects within Iran in the short and medium term.

Of note, the auto industry is the biggest economic sector in Iran, after oil and gas, accounting for 10% of gross domestic product. It has been in decline in recent years after being hit with a double whammy of sanctions and currency depreciation, both of which drove up prices for imported parts. A 2015 World Bank report shows that the annual production of cars in Iran sharply declined to 700,000 in 2012, down from 1.6 million prior to the intensification of sanctions.

The collapse of vehicle production led to layoffs in the sector, which accounts for 4% of the workforce, according to the report. The World Bank has forecast that car production will climb to around pre-sanction levels “within the next two years” if industry officials manage to persuade global manufacturers to immediately resume operations in Iran. The Rouhani administration appears to have taken note of the latter point, as it is moving to reconnect with French partners to aid economic growth.

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