Tea With the Ayatollah

PSA’s close links with Iran may have placed Carlos Tavares in an invidious position regarding his North American plans. We investigate.

Image credit: motorpage

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.

Image credit: (c) Islamic Republic News Agency via payvand

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.

Iran Khodro Peugeot 206SD Sedan. Image credit: picstopin

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.

Author: Eóin Doyle

Founding Editor. Content Provider.

8 thoughts on “Tea With the Ayatollah”

  1. Tavares would have to sacrifice 400,000 sales in Iran to gain – what exactly? 10,000 to 15,000 US sales?
    Presumably PSA customers in Iran are happy because the cars are what they need and want whereas I seriously doubt that they would be able to maintain sales momentum in the US for any length of time because their products are not what US customers need and want.
    Maybe they need a retro design 403 cabrio with non-opening roof for cigar smoking police inspectors…

  2. I agree with Dave, better to concentrate on growing markets. How many times have we seen failed attempts at entering the now stagnant US market? Also, as a footnote, it’s a shame to see this blog regurgitating propaganda from the corporate media about Iran. These sanctions are nothing to do with nuclear weapons and everything to do with the Iranian administration’s determination to do things independently of the wishes of the US regime, particularly keep a higher proportion of oil revenue in Iran, organise society in a non-neoliberal fashion and abandon the petrodollar, the last being the most serious and dangerous move against the empire. It will be interesting to see if the EU stands up to the US regime as it’s not just Peugeot that stands to lose as a result of these sanctions. Of course, here in the UK, there’ll be a totally subservient line given by the corporate media and the UK regime.

    1. Iran’s a very complex country and a terrific example of how ill-considered foreign policy can yield enduring and intractable problems. It is a pity Iran is seen through the lens of the 1979 revolution and its aftermath. There is much more to Iran than political religion. I say all that because as an automotive blog our remit has to stop somwhere and the perplexities of Persian politics are beyond those. So regardless of the “why”, PSA has to deal with a choice of whether or not to continue its dealings in the Iranian car business. In this case I to feel that Trump should not be the reason for PSA to wind down its Iranian and also that the US market is far too risky to handle. As a qualifier, every point about Iran has a counterpoint – so I’ll stop here.

    2. Here’s a man who understands. Spot on Mark.

      With virtually all monetary transactions from personal to big time commercial going through New York City (your European SWIFT system recently bought by Wells Fargo hammers home the point), the US can hold up payments while insisting the USD be the primary means of international payment on transactions they unilaterally approve. That’s how they have European companies dealing with Iran on the back foot. There is no alternative world currency at the moment. So they’re stuck. No, the euro doesn’t work – yet.

      Forget the political blather. Iran has recently been selling huge amounts of oil to China for yen. No USD involved. Well, we can’t have that, the US says. So apart fron Chinese companies, other foreign companies are snookered at the moment and forced to obey US dictats. Iran and China must be brought to heel. Will the EU grow a spine and refit banks for euro transactions against implacable US pressure not to do so? Stay tuned.

      Peugeot are stuck in a very poor situation. If the EU bucks the US, then the 25% tariffs on aluminum and steel go into effect, same with cars. Uncompetitive at once. It could be argued that with a friend like that, who needs enemies. Macron and Merkel are not impressed, but the US is not moved. The vassals must bow to superior might. Or else.

    3. Bill: the sale of Swift escaped my attention. I’d call Swift a piece of vital infrastructure not a commodity. Swift is a powerful tool for monitoring people – I wonder how WF will adhere to EU data laws.

  3. No matter what’ll happen I think PSA better enjoy the Iran sales while it lasts. As soon as that market will open up to new carmakers their sales will probably dip way below what’s expected after new competitors come in. A 30 odd years foothold in China didn’t stop Citroën from being trounced by its newer rivals like Skoda which was only introduced 4 years ago in that country. Trust PSA to never properly build on strengths they already have…..unless Carlos Tavares managed to change the whole mentality within the company.
    Let’s face it Iran’s love affair with PSA is really only due to the lack of choice Iranians have when it comes to car purchases, not because PSA provides them exactly with what they need or want. Open up the market like China did a few years back and I expect the Iranian middle-class to flock en masse to German, Korean and Japanese brands.

    However if a choice needs to be made between trading in Iran or enter the U.S market I too think they’re still better off looking East. The U.S market may be too mature and saturated for any of PSA’s brand to make a meaningful impact. On top of that, I think PSA will struggle even more on the U.S market because of their country of origin. Ever since 9/11 or more precisely the start of the Iraq war there has been a relatively strong anti-french sentiment in American society (“surrender monkeys”, “Freedom fries” and all that). Worse for PSA is that it seems that these negative emotions are felt more strongly by the working and lower-middle class which are traditionally where PSA’s customers are. Granted, we are many years removed from the Iraq war era but I think we can still witness those sentiments regularly for it to be a possible issue regarding PSA’s U.S plans.

    1. Do you think Peugeot has a “working class” and “lower middle class” customer base? I find that hard to believe. Peugeots seem to me to be classless even if less costly than VWs, for example. I think the era when you could assert with much confidence that car brand X was “working class” ended when the “working class” stopped getting paid enough (after Reagan/Thatcher). The car hieearchy has collapsed with only a few brands discernably better placed than the rest: not one of Ford, Kia, Citroen, Opel, Hyundai, Renault, Seat, Mazda are not discernably more or less classy. We can discuss some peculiar brands like Suzuki and Subaru and maybe Dacia who have products too idiosyncratic to be placed. Even Dacia’s bargain prices are shame-free like a glass or light bulb. They are served as staight-forward transport rather than tinselly trinkets.

    2. True, with easy finance available, someone who earns just above minimun wage can probably drive a Mercedes CLA nowadays so perhaps the Class issue is redundant in 2018. Maybe I view Peugeot in a more Southern European way. I think they, and other French car brands, have that quirky, idiosyncratic image that may appeal to a broader section of society in Northern europe. In that part of the world they seem to me to appeal to “left-field” customers, regardless of class but in Southern Europe I get the feeling Peugeots and French cars in general,, are viewed primarily as cheaper cars to buy and run compared to, say, VW or any of the Japanese manufacturers and on account of their price point have traditionally been bought by working or lower middle-class people. I live in a working class area, the parking lots are full of Peugeots, the more affluent ares have a distinctly more teutonic feel. I think Peugeot may have had that middle/upper-class thing going on in 60s or 70s France/Europe but that may have went the way of the dodo from the 80s forward with the advent of the cheap diesel French car.

      This leads me to think of those tags we affix on certain cars. For example, I remember in the U.K press, when they had a test drive or review involving the Clio, the car itself was more often than not described as ‘Chic’. Why was it considered ‘chic’? Just because it came from France ? Was it really more ‘chic’ than a Polo or a Fiesta ? It didn’t even have a Baccara version and the Germans had better plastics.

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