Renault Gearing Up in Case Iran Auto Market Reopens

By Benoît Faucon 

TEHRAN--As talks over lifting sanctions on Iran drag on, Renault SA is positioning itself for what executives hope will be a reopening of one of the Middle East's biggest car markets.

The French auto maker recently resumed selling automotive components to Iran, where they are used at a plant run by an Iranian partner to assemble Renault-branded cars. Renault halted those shipments amid Western sanctions specifically prohibiting them, and amid tightened banking sanctions that made getting payments out of Iran effectively impossible.

Renault executives are also considering investing in their Iranian joint venture partner, Pars Khodro, should the West lift sanctions, according to people familiar with the matter.

In early 2014, Western powers temporarily lifted some of the sanctions they had slapped on Iran over decades--including some related to commercial aviation, the automotive industry and petrochemical activities. But Tehran hasn't yet reached a deal with the West curtailing its nuclear program, pushing back any more permanent sanctions relief. Banking restrictions that are still in place have also made it difficult for Western companies to re-enter Iran in a meaningful way despite the recent thaw.

Renault was recently able to resume shipping its parts, using local money-exchange houses to legally repatriate payments, according to people familiar with the matter. A Renault spokesperson said "it is closely monitoring...ongoing negotiations to be ready, if necessary, to resume a normal level of activity in compliance with all applicable requirements."

Before the ban on car parts and bank transfers, Iran was producing about 1.6 million cars a year. French rival PSA Peugeot Citroën pulled out of its Iranian joint venture in 2012. Other auto makers, including South Korea's Kia Motor Co. and China's Chery Automobile Co., also make cars in Iran. But after Peugeot left and Renault stopped shipping in components, auto output plunged to some 800,000 units a year.

At one stage, Pars Khodro all but stopped assembling Renault cars. During a recent visit, the unpainted steel bodies of several local version of the Renault Megane sat rusted on an assembly line. But on another line a floor below, Pars Khodro is now turning out 70 no-frills Renault-designed Tondars--called the Logan outside Iran--a day.

Renault last year wrote off about EUR500 million ($580 million) in funds that it had received over the years from sales in Iran because it said under current banking restrictions it can't repatriate the money. Renault executives have discussed buying a stake in its partner Pars Khodro, using some of those stranded funds, according to people familiar with the matter. Serious discussions over such a move wouldn't be possible until sanctions are permanently lifted, however.

Pars Khodro is 85% owned by Iranian state-run car manufacturer Saipa. Renault's Iranian unit, Renault Pars, has broached the idea of taking up as much as 45% of Pars Khodro, these people said. It is unclear how much any such deal would value Pars Khodro, which manufacturers other lines of cars besides Renault.

A Renault spokesperson declined to comment on any approach, but executives have signaled in the past they are moving cautiously. "There are still sanctions on Iran," Renault Chief Executive Carlos Ghosn told a Paris gathering on Monday, speaking about the company's general plans in the country. "So we've got no room for maneuver."

Jason Chow

in Paris contributed to this article.

Write to Benoît Faucon at [e-mail]

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