Why French Carmakers are real Winners of Iranian Protectionism

The French executives continued negotiations in Tehran the following summer. As such, PSA and Renault were largely prepared when the nuclear deal was implemented in January 2016. Their joint venture agreements with Iranian automakers provide them with the access to a market where tariffs bar the competition.

Gauging Iran’s market, French automakers have reasons to feel secure: Their cars are cheaper than imported cars and are of higher quality than the local products. Iran’s high import tariffs encourage luxury car imports and not innovation in car manufacturing. From March 2016 to February 2017, Iran imported 61,245 vehicles valued at 1.5 billion euros ($1.6 billion) — or an average of roughly 25,000 euros ($27,000) per car. Adding import tariffs, VAT and overall sales tax, it is clear the price tag is unaffordable for the working and middle classes. Indeed, based on Ministry of Labor directives, a common laborer earns $230 per month.

SAIPA, the other major car manufacturer in Iran, produces versions of Kia Pride in massive numbers, priced at around 5,200 euros ($5,600). However, its poor safety performance means many Iranian consumers prefer a sturdier option. Given that Peugeot and Renault cars have the upper hand in quality compared to SAIPA Prides, IKCO and Pars Khodro can charge a mark-up; a Peugeot 206 or 405 is priced at around 8,000 euros ($8,600), and with added options, can cost up to 12,000 euros ($12,900).

A Megane can go for as high as 25,000 euros. Although more expensive than Iranian domestic designs, these cars are still less pricey than imported vehicles. The price gap is protected by high tariffs, turning this market segment into a monopoly for French automakers. In short: Some foreign carmakers are benefiting from their market position in Iran to boost their global standing.

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