Iran car lovers hope for nuclear deal dividends

A tongue-in-cheek TV report this year highlighted just how fed up Iranians are with one of their most well-used cars. A Painful Choice — a segment on a news programme — showed several dozen Kia Prides lined up at the border for export to Iraq.

“Now for Iraqi people, the question is whether Pride is more dangerous than Daesh (Isis),” the reporter joked, referring to the Islamic State of Iraq and the Levant, the jihadi movement that has overrun swaths of Syria and Iraq.

Tough western sanctions mean Iranians looking to splash out on a new car have few options. The Kia Pride, made in Iran by Saipa, is one of them. It accounts for 40 per cent of the cars on the country’s roads — and is increasingly becoming a national joke.

Iranian police and health officials have repeatedly warned of the perceived dangers of driving the car. Last year, Brigadier General Eskander Momeni, deputy head of the national police, went so far as to call for production to be halted.

But the jokes and warnings may soon be a thing of the past. Hopes are high that the landmark nuclear accord Tehran negotiated with the US and other world powers this month could lead to the removal of international sanctions.

That could grant a new lease of life to Iran’s car sector, one of its biggest employers and its largest non-oil industry, whose fate is a pressing concern for politicians and economists.

“We do not expect miracles but [the] lifting of sanctions means Iranian companies can choose those partners which are bigger [leading vehicle manufacturers] rather than those which are smaller than us,” said Davoud Mirkhani Rashti, a senior adviser to the Iran Manufacturers’ Association.

Saipa, meanwhile, has fought back against the Kia Pride jokes. It called them “suspicious” and damaging to a “strategic domestic product”. It also noted that they had come a few days after the company concluded a $100m contract with Iraq.

In a written statement to the Financial Times, Saipa said since March 2012, 4.67m Pride cars had been produced, which had been involved in 114,799 accidents.

Sanctions on the Iranian car industry, the biggest of any country in the Middle East, have had a devastating impact. Companies have struggled to get parts and finance, while fewer customers can afford to buy the cars.

Even the Kia Pride is no longer the cheap option it once was. The car now costs 190m rials ($6,842), compared with 75m rials ($2,700) three years ago. Yet for many, it remains the most affordable model on the market.

“I have no other choice but to dream of buying a Pride even though my children think people would look down on us if we have [one],” says Khadijeh, a 35-year-old housewife. “It symbolises low social class.”

There are also a lot fewer new Kia Prides available than there used to be. Production of local cars by companies such as Khodro and Saipa fell 50 per cent to 1.6m in the two years to March 2014, according to official figures. Meanwhile, as many as 100,000 workers have lost their jobs in the car parts sector in recent years, industry groups say.

Car companies have also been hit by high interest rates, although some have managed to reduce their debts. “Carmakers have generated some cash through the sale of unnecessary assets,” said Ahmad Nemat-Bakhsh, the head of Iran’s Vehicle Manufacturers’ Association.

Sanctions have also delayed investments. Western companies have been reluctant to embark on new projects in the sector while sanctions persist, said Sasan Ghorbani, the secretary-general of the Iranian Auto Parts Manufacturers Association.

With the domestic industry under so much pressure, Chinese cars have become increasingly popular. “Sanctions have forced Iran to turn to Chinese vehicle manufacturers,” said Mr Nemat-Bakhsh. “If sanctions are lifted both Iranian and Western sides are keen on working together, meaning that Iran will no longer focus on China.”

The election of moderate president Hassan Rouhani in 2013 offered the industry some grounds for hope. Executives applauded when veteran manager Mohammad-Reza Nematzadeh, who was credited with turning round Iran’s petrochemical sector, was appointed industry minister.

Regular meetings with politicians have also reassured executives their concerns are being taken seriously.