VW follows Peugeot, Boeing into Iran amid global expansion

[FRANKFURT] Volkswagen AG plans to sell cars in Iran for the first time in 17 years, taking advantage of easing sanctions to expand amid concerns about stalling growth in Europe and China.

Volkswagen has signed a contract with local importer Mammut Khodro to offer Tiguan compact SUVs and the Passat family car, mainly at dealerships in the Tehran area, VW said in a statement. Expanding into emerging economies is part of VW's strategy to reduce its reliance on its main markets and add new sources of revenue.

"By returning to Iran, the Volkswagen brand is filling another blank spot on the global automobile map," Anders Sundt Jensen, the company's project manager for Iran, said in the statement.

Volkswagen is the market leader in Europe and China, and is struggling to rebuild operations in the US after the diesel-cheating scandal. That leaves Iran, with a population of 80 million, as a rare opportunity for growth. Companies from Boeing Co to Total SA are jostling for early entry to the Islamic Republic a year after international sanctions tied to its nuclear weapons program were lifted.

For Volkswagen, which delivered 10.3 million vehicles last year, making it the world's biggest automaker, Iran will be a small addition. Sales of the Tiguan and Passat, due to start in August, will initially be limited to eight dealerships. And VW has often struggled to break into emerging markets, where buyers prefer cheaper cars than the brand is able to offer.

"Whether they sell a couple of thousand cars in Iran is more of a signal whether they can get it done in emerging markets," said Arndt Ellinghorst, a London-based analyst with Evercore ISI.

"Iran is more important for a Peugeot than a Volkswagen, because the French were bigger in Iran before the sanctions started."

Peugot-producer PSA Group was the first carmaker to re-enter with a deal announced last year to upgrade its Peugeot factory near Tehran and start building Citroen models in the country.

A few months later, Renault SA said it would set up a new plant with capacity to build 150,000 autos per year.

Iran auto production growth will average 11 per cent through 2021, Fitch Group's BMI Research said in April. The return of European carmakers to the Iran market will boost the sector, although remaining US sanctions will damp growth.

The Iranian government expects annual registrations to eventually reach three million, according to VW's statement. That compares with about 3.4 million deliveries in Germany last year.

The German automaker's push in Iran coincides with intensifying political tension in the Gulf region embroiling VW's third-largest shareholder Qatar, which is facing an unprecedented boycott by four of its neighbours over alleged ties to Muslim extremists. Iran and Turkey have stepped in to support the emirate.

European cars were popular in Iran before the 1979 revolution and eight-year war with Iraq decimated the economy and strained relations with western companies. VW sold the Beetle there in the 1950s and the Bulli van in the 1960s.

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