PSA’s close links with Iran may have placed Carlos Tavares in an invidious position regarding his North American plans. We investigate.
One has to have some sympathy for PSA’s Carlos Tavares. Having taken the French carmaker from sick man to industry darling, of late, headwinds have been intensifying. A significant strand of Tavares’ Push to Pass strategy has been an expansion into Eastern developing markets, such as India and the CIS region – one which has been paying dividends, PSA posting a strong global sales performance in 2017, with over 3.7m vehicles made, a jump of 15.4% over the previous year.
But additionally, he’s promised a return of some form to the United States, from which PSA have been absent for almost three decades. It has remained unclear exactly how this is to be achieved, or through which car brand, but recent political events may just have rendered all such ambitions academic.
PSA’s links with the Islamic Republic of Iran date back to the pre-revolution era – a period when Peugeot cars were renowned for their ruggedness and durability. In 2001, production of the 405 model was initiated in conjunction with Iran Khodro – Iran’s national carmaker. More recently however, following intense political pressure in opposition to the Iranian’s nuclear programme, sanctions were enacted against Tehran, necessitating PSA’s withdrawal.
Matters changed significantly in 2016, following the signing of an agreement suspending Iran’s uranium enrichment programme, which saw the Iranian market once again open up to trade, allowing PSA to renew its Iran-Khodro links. The 50:50 IKCO-Peugeot Joint Venture (IKIAP) which has produced the Pars (405), 206 and 207 models, is committed to building the 208, 2008 and 301 at production sites in Tehran, Shiraz and Mashhad.
The success of this venture appears undeniable. Iran is a country of over 81 million people, with a growing middle class who have benefited from a degree of liberalisation under the current political regime. The market appears to be there, evidenced by sales of over 400,000 Peugeot-sourced cars in 2017, making Iran PSA’s second biggest market outside of France.
According to a Financial Times report earlier this year, PSA’s sales across the entire Middle East/Africa region rose 61.4 per cent to 618,800 vehicles, eclipsing that of China, where PSA continues to slump, the same report citing falls there of 37.4 per cent to 387,300 cars.
Moreover, the double chevron has also entered the Iranian market, with an agreement signed to build three Citroën models in the country. Last week, the C3 model was launched and according to an Automotive News report, over 2000 examples were sold within an hour of the model going on sale.
These developments further underpin Tavares’ aim to repurpose PSA into a global business – one less reliant upon a saturated and declining European market. However, the US administration’s decision to abandon its landmark deal with Tehran and reintroduce sanctions could seriously undermine these plans.
Under the proposed sanctions regime, the US administration has not only barred any domestic company from doing business with Iran, but threatened to deny any non-US business trading with Tehran from obtaining finance from the US Banking system.
Yet while the EU appear adamant they will continue to honour existing agreements with Iran, the realities within a globalised auto business are a good deal more complex. Already, several carmakers with ties to the US are reconsidering their investments, but PSA are the most embedded and committed.
Tavares is presented with a formidable dilemma. Entering the US market now comes with a caveat on top of the uncertainty, colossal investment and alignment it will entail. One which will mean being forced to abandon billions in investment and potential revenue. Does he maintain a strong and growing relationship with an established market, even if doing so kills any hope of a US push taking place in any meaningful way? What is increasingly clear is that he cannot achieve both.
The irony is that PSA may be forced out of Iran anyway, certainly if the current US administration gets its way. So no matter which way the dice land global geopolitical events will have blown a sizeable hole in PSA’s recovery plan, which will undoubtedly have all manner of as yet unseen repercussions.
The car business isn’t getting any easier to navigate, even without becoming hostages to geopolitical fortune. Because if indeed the US forces PSA’s hand, Tavares’ North American ambitions may become a matter of commercial necessity. Carlos Tavares growth plans had previously looked both East and West. Now, it appears he will be compelled to choose.