An overview of the key success factors for automotive OEMs entering the Iranian market Munich, March 2016 Iran – A historic opportunity for automotive OEMs
An overview of the key success factors for automotive OEMs entering the Iranian market
Munich, March 2016
Iran – A historic opportunity for automotive OEMs
2 Roland Berger_Iran_A historical opportunity_Final.pptx
Your Iran experts at Roland Berger
Philipp Grosse Kleimann
Senior Partner Munich
+49 89 9230 8718 [email protected]
Alexander Brenner
Principal Hamburg
+49 40 37631 4318 [email protected]
Santiago Castillo
Principal Dubai
+971 4446 4080 [email protected]
3 Roland Berger_Iran_A historical opportunity_Final.pptx
Contents Page
A. Iran – Status quo 5
B. Why enter the Iranian market – 6 opportunities for growth 11
C. How to enter the Iranian market – 9 key success factors 20
D. What to do now – Next steps 31
4 Roland Berger_Iran_A historical opportunity_Final.pptx
Management summary
Source: Roland Berger
A
Iran – Status quo
> Iran is the 18th largest economy globally with a positive trade balance and strong focus on oil products and car manufacturing
> IAEA confirmed that Iran met the relevant requirements under the JCPOA and all nuclear sanctions were lifted on January 16, 2016
B Why enter the Iranian market – 6 opportunities for growth
> Lifting of major sanctions provides a historical opportunity for foreign automakers to re-enter the attractive Iranian automotive market – 6 opportunities for growth
C How to enter the Iranian market – 9 key success factors
> OEMs need to thoroughly understand the national specifics before entering the Iranian market – 9 key success factors identified
D
What to do now – Next steps
> Think: Thoroughly understand the Iranian market and analyze the existing dealership network
> Act: Decide on whether to take a greenfield approach or to partner with a local dealership network and define for each model a CBU vs. SKD/CKD strategy
5 Roland Berger_Iran_A historical opportunity_Final.pptx
A. Iran – Status quo
6 Roland Berger_Iran_A historical opportunity_Final.pptx
As populated as Germany, Iran is the world's oldest country, boasting a sophisticated education system and excellent growth potential
Source: Goldman Sachs; Boston Consulting Group; UN population division; World Bank; CIA World Factbook; Roland Berger
Key facts and figures
Iran is almost as populated as Germany > Iran ranks 19th in the world in terms of population, only 150,000 inhabitants short of Germany
in 18th place (July 2014). Also, Iran's population is relatively young with a median age of 28.3 in 2014 (Germany: 46.1)
Iran is the oldest country in the world today > Iran's history as a nation dates back to 3,200 BC, making it the oldest country
in the world today
> All of this has been entirely witnessed by Sarv-e-Abarkooh, the world's third oldest tree at over 4,000 years of age
Iran is one of the "Next-11" countries > Goldman Sachs identified Iran as one of the Next-11 countries offering the best growth
potential beyond BRIC nations. It is estimated that growth of the Next-11 countries will outperform Triad and BRIC markets in the coming years
Iran has 2nd largest university globally and more female than male students > The Islamic Azad University Tehran is the 2nd largest university in the world with 2 m
students. Iran also has the best educated population in the Middle East & North Africa
> In 2012, approximately 60% of enrolled university students were female
7 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran is centrally located between the Caspian Sea and Indian Ocean – Major cities are Tehran, Mashhad and Isfahan
Source: Statistical Centre of Iran; Roland Berger
Geographical overview
Markazi
Hormozgan
Ilam Lorestan
Chahar Mahall/
Bakhtiari Khuzestan
Isfahan
Yazd
Kohgiluyeh/ Buyer Ahmad
Fars
Bushehr
Kerman
Sistan and Baluchestan
South Khorasan
Razavi Khorasan
North Khorasan Golestan
Semnan
Qom
Tehran
Mazandaran
Qazvin
Zanjan
Hamadan
Kermanshah
Kordestan
West Azarbaijan
Gilan
Ardebil
East Azarbaijan
Ahvaz
Isfahan
Shiraz
Mashad
Qom Tehran
Orumieh
Tabriz
Karaj
Kermanshah
1) Based on 2011 census data 2) Share of total population
Capital Tehran, Tehran province
Country size ['000 km²] 1,648.2
Top 10 cities
Tehran
Mashhad
Isfahan
Karaj
Tabriz
Shiraz
Ahvaz
Qom
Kermanshah
Orumieh
Inhabitants1) [m]
8.2
2.7
1.8
1.6
1.5
1.5
1.1
1.1
0.9
0.7
[%2)]
11%
4%
2%
2%
2%
2%
2%
1%
1%
1%
8 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran is the 18th largest economy globally with a positive trade balance and strong focus on oil products and car manufacturing
Economic overview – Iran in 2014
1) 2013 2) 2012
Source: International Monetary Fund; Oxford Economics; The Atlas of Economic Complexity; World Bank; World Economic Forum; Bloomberg; Roland Berger
Current account [USD bn]: 19.1
Current account balance [% of GDP]: 4.8
Foreign direct investment [USD bn]: 3.1
Currency: Iranian rial
Exchange rate IRR / EUR (avg.): 34,443.9
Exchange rate IRR / USD (avg.): 25,916.8
GDP [nominal USD bn]: 404
GDP per capita [USD]: 5,183
Population [m]: 78.5
Unemployment [%]: 10.31)
Global Competitiveness Index: 66th 2)
Bloomberg Innovation Index: 47th 1)
World bank GDP PPP based ranking: 18th
Exports (goods and services) [USD bn]: 95.3
Export of mineral products [% of total exports]:
842)
Most important export partners:
China, USD 22.0 bn2)
India, USD 12.0 bn2)
Main industries:
Petroleum, petrochemicals, fertilizers, vehicle manu-facture & parts
Imports (goods and services) [USD bn]: 81.0
Import of machinery and manufactured goods [% of total imports]:
552)
Most important import partners:
China, USD 11.0 bn2)
Turkey, USD 9.9 bn2)
9 Roland Berger_Iran_A historical opportunity_Final.pptx
IAEA confirmed that Iran met the relevant requirements under the JCPOA and all nuclear sanctions were lifted on January 16, 2016
Details on sanction status
1) Comprehensive Iran Sanctions, Accountability and Divestment Act 2) In 2010, Iran imported about 30% of its refined petroleum 3) Joint Comprehensive Plan of Action
Source: U.S. Department of State; U.S. Department of the Treasury; UANI; O´Melveny & Myers LLP; Roland Berger
1997
2010
2013
2012 2014 2015 June
November March
January
2016
First sanctions imposed by USA
CISADA1) – expanded sanctions on supply of petroleum products2)
. Further expansion of existing sanctions on imports or exports with value >100 USD allowed
Executive order 13645 – authorizes a range of sanctions, also for non-US companies that continue to service the Iranian automotive industry (manufacturing side only). Non-US financial institutions are also subject of this Executive Act
Geneva Interim Agreement – temporary suspension of nuclear program on Iranian side triggers suspension of sanctions in the Iranian automotive segment. Automakers subsequently reactivated their assembly operations in Iran (e.g. Mercedes-Benz & Lexus)
Preliminary Agreement – provisional agreement on framework for permanent suspension of sanctions
JCPOA3) – phased sanction relief upon verification that Iran has implemented key nuclear commitments – January 16th the IAEA declares that Tehran has fulfilled its obligations and the lifting of sanctions is announced
> The history of sanctions on Iran dates back to 1979
> Several rounds of further reinforcement – latest in effect since 2013
> In July 2015, the 6 nations (P5 + 1) signed the Joint Comprehensive Plan of Action
> The plan includes a gradual process of sanction lifting based on IAEA-verified implemen-tation of agreed nuclear-related measures
10 Roland Berger_Iran_A historical opportunity_Final.pptx
Almost all economic and financial sanctions imposed by the EU and USA have been terminated – Certain restrictions still in place
Impact of lifting of nuclear-related sanctions – Selection
Source: Congressional Research Service; Iran Watch; Roland Berger
Iranian companies are again allowed to export Iranian oil, gas and petrochemical products as well as gold, precious metals and diamonds, and the delivery of Iranian banknotes and coinage is permitted
Most banking activities, including the opening of new branches of Iranian banks in the EU and the opening by EU entities of new offices, subsidiaries, joint ventures or bank accounts in Iran are allowed again – Also transfers of funds between EU entities, including financial and credit institutions, and Iran
Foreign companies are allowed to invest in and export equipment for Iran's oil, gas and petrochemical sectors
EU and USA lifted sanctions that impose asset freezes and travel bans on a set of companies and individuals (mostly in the financial, energy, shipping and transportation sectors)
Iran will also regain access to financial messaging services, including SWIFT, on Implementation Day, but banks that remain designated by the EU will remain cut off from those services until Transition Day
All sanctions by the UN and some EU sanctions are terminated or suspended. US has lifted its nuclear-related secondary sanctions, thus allowing other countries to do business with Iran. However, primary sanctions are still in place, prohibiting US companies from conducting commercial transactions with Iran (few exceptions). Other sanctions
imposed by the European Union, United States and United Nations due to funding of terrorism (e.g. ban on missile technology, conventional arms embargo) are still in place but have no effect on the automotive industry
Sanctions regarding specific industrial sectors have been lifted, e.g. automotive industry, shipping, shipbuilding and transportation sectors, and insurance and reinsurance of Iranian entities
11 Roland Berger_Iran_A historical opportunity_Final.pptx
B. Why enter the Iranian market – 6 opportunities for growth
12 Roland Berger_Iran_A historical opportunity_Final.pptx
Lifting of major sanctions provides a historic opportunity for foreign automakers to (re-)enter the attractive Iranian automotive market
Opportunities for growth in the Iranian market
Source: Roland Berger
Positive development of car sales in all segments
4
Following the waiving of sanctions, new car sales will grow from 2015 onward with a CAGR of 18% p.a. until 2020
Positive economic outlook
1
Economic outlook reflects positive influence of the JCPOA – Solid growth of almost 4.4% from 2016 onward
Legislative initiatives to foster modernization of car parc
5
Iran's authorities have introduced various initiatives to modernize the Iranian car parc – Increasing demand for foreign technology
Increasing customer base
2
Iran's baby boom generation born in the 1980s represents an emerging group of customers
Iran as an export hub
6
Iran is centrally located with good access to Middle Eastern and Asian markets
Demand for foreign products
3
Iranian customers prefer imported goods because of their perceived better quality
13 Roland Berger_Iran_A historical opportunity_Final.pptx
Economic outlook reflects the positive influence of the JCPOA – Solid growth of almost 4.4% from 2016 onward
Source: International Monetary Fund (IMF); Oxford Economics; The World Bank; Roland Berger
Economic outlook – Overview
Positive economic outlook 1
> Iran's economy suffered under the sanctions in recent years (2012 & 2013)
> Oxford Economics predicts medium-term growth rates of 4.0% (2016) and 3.7% (2017)
> Iran is an oil-dependent economy, but has gradually reduced its dependency since the 1990s from 80% to 50-60% (2013) of government revenues based on oil exports
> As of December 2015, the share of oil in Iran's budget was 26.1% representing a decrease of 13.8% from the same period in the prior year
> In the wake of the deal on the easing of sanctions, oil exports are expected to double to pre-sanction levels by 2017, from currently 1 m BBL per day to 2.5 m BBL per day
> Successfully implemented measures brought inflation down from their peak of >30% in 2013
> Furthermore, inflation is expected to decrease slightly and may have downward potential if imports (esp. food) cheapen after the lifting of sanctions
0
10
20
30
40
-8
-6
-4
-2
0
2
4
2017e 2016e 2012 2014 2013 2015e
Oxford Economics (Jul 2015) IMF (WEO; Apr 2015) IMF (WEO; Oct 2014)
Annual GDP growth [%]
Consumer price index inflation [%]
14 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran's baby boom generation born in the 1980s represents an emerging group of customers today
Demographic outlook – Overview
Source: United Nations – Department of Economic and Social Affairs (July 2015); Roland Berger
Increasing customer base 2
> After the revolution in 1979, birth rates rose and led to a rapid increase in population with growth rates of 3.7%
> By the end of 1989, the authorities introduced measures to prevent "overpopulation"
> Future growth rate is expected to be 0.4%
> By 2030 Iran will have more inhabitants than Germany
> By 2050, 74 m Iranians will be over 20 years of age (55 m in 2015)
> Iran's age pyramid is thus marked by the baby boom generation from the 1980s, with 51% of the total population below 30 years of age (2050: 29%)
> These generations will fuel demand for cars in the future as they recently entered or will be entering the workforce in the coming years and will reach their peak purchasing power by approximately 2040
Age distribution 2015 & 2050 [m]
Total population and growth rates 1990-2050 [m]
25e 15
86
20e
47
79
56 74 70
89
05
60
85
66
80 90
83
2000 30e
90
35e 75
39 33
95 10
91 1.4%
50e
92 92
0.4%
40e
3.7%
45e
12 14 0 16 18 2 10 4 6 8
40-49 30-39
50-59
90-99 80-89
60-69 70-79
100+
20-29 10-19 0-9
18 0 2 4 6 8 10 14 12 16
2015 2050e
51% 29%
15 Roland Berger_Iran_A historical opportunity_Final.pptx
Iranian customers prefer imported goods because of their perceived better quality – Survey shows highest interest in imported cars
Source: Roland Berger study "How to do business in Iran – successfully" 2015
Demand for foreign products 3
Customer attitudes toward foreign companies, goods and services
Note: Survey conducted by On Device Research in August 2015 via mobile internet for a sample of 1,000 Iranians
Which nationality of company would you consider working for?
Which countries are you interested in visiting?
How good do you consider the quality of products from these countries?
What is the main reason you are interested in imported goods from abroad?
What kind of imported products would you be interested in?
29
40
83
France Germany USA
99
66
More
choice
Latest
design
Better
quality
3840
49
Car/
motor
Com-
puting
Personal
electro.
313337
France Germany USA
808587
Japan Germany USA
16 Roland Berger_Iran_A historical opportunity_Final.pptx
Following the waiving of sanctions, new car sales will grow from 2015 onward with a CAGR of 16% p.a. until 2020 in an optimistic scenario
Passenger car sales in Iran 2010-2020 [m units]
Source: IHS Global Insight; Frost & Sullivan; Roland Berger
2013
0.7
2012
0.9
2011
1.5
2010
1.4
2018e 2017e 2016e 2015
0.8
2014
1.0
16% p.a. -53%
2020e 2019e
1.4
1.8
Historic Forecast
Positive development of car sales in all segments 4
> Imposition of sanctions on Iran reversed the growth of the car market in 2011 and new car sales subsequently dropped to just 690,000 new cars sold in 2013 (-53% compared to 2011)
> After the Iranian vehicle market was reopened to foreign automakers in November 2013, positive effects materialized as early as 2014
> The positive outlook with a CAGR of 16% is based on the assumption of a gradual waiving of sanctions – 2015, however, was characterized by postponed purchases due to the anticipated lifting of sanctions
Base scenario Additional volumes in optimistic scenario
17 Roland Berger_Iran_A historical opportunity_Final.pptx
Premium car sales will outperform the overall market with expected growth of ~66% p.a. between 2015 and 2020
Passenger car sales in Iran by price segment 2010-2020 ['000 units]
Source: IHS Global Insight; Roland Berger
> Import tariffs on new cars (CBUs) have been lowered to 40% in 2013, supporting new car sales going forward
> The market collapsed in 2011/2012 due to the political situation
> The six-month period of eased sanctions starting on January 18, 2014 and later extended to November 2014 has given a boost to Iran's auto sales
> Premium market is expected to outpace the overall market, highlighting the shift in demand toward premium products
Volume car sales
66% p.a.
90
7 7 6 4 4 5 50
1,300
1,000
2013
700
2012
900
2011
1,500
2010
1,400 16% p.a.
2020e
1,700
2019e 2018e 2017e 2016e 2015
800
2014
Premium car sales
Other Volvo
Lexus
Audi
Mercedes-Benz
BMW
Group
Others
Hyundai KIA
Renault
Peugeot
Toyota
2015
2015
Positive development of car sales in all segments 4
Base scenario Additional volumes in optimistic scenario
18 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran's authorities have introduced various initiatives to cut emissions and modernize the car parc – Opportunity for foreign OEMs
Details on legislative initiatives
Source: IHS Global Insight; Roland Berger
Initiative
1) <6 l/100 km, 2 cars; 6-10 l/100 km, 4 cars; >10 l/100 km, 10 cars 2) Restriction is expected to be withdrawn when sanctions are lifted
Details > Iran in the past followed EU emission standards:
– In March 2005, Euro II standards were adopted for all gasoline and diesel vehicles – Euro III norms followed in March 2008
– Since March 2012, compliance with Euro IV standards is mandatory for all locally produced gasoline and diesel vehicles and Euro V for import vehicles
– It is expected that from 2016 onward imported vehicles will have to comply with Euro VI
– Authorities also reacted to air pollution with the introduction of restricted traffic zones
> The government wants to foster the shift from petrol to natural-gas-powered vehicles
> As of 2015, Iran has the second largest fleet of CNG powered vehicles globally
> 60% of the total number of vehicles sold in the country must run on natural gas or on dual-fuel – However, this regulation is currently not enforced as it is not technically feasible
> Focus has recently shifted toward hybrid powertrains (lower import tariffs, fewer restrictions, etc.)
> As of today, around 2.2 million vehicles are affected by the scrappage program introduced to reduce the average fuel consumption of the current car parc
> Authorities want to put some 200,000 vehicles per year out of the market, eventually to be replaced by newer, more efficient cars
> Expected duration of this measure is 10–15 years
> Program so far successfully reduced average age of vehicles in use from 17 years (2005) to 10.6 years (2013)
Legislative initiatives to foster modernization of car parc 5
Emission standards
Alternative powertrains
Scrappage program
19 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran is centrally located with good access to Middle Eastern and Asian markets – Tax breaks to foster export of local goods
Iran as a gateway to other budget markets
Source: Iran Khodro, PSA; Press research; Roland Berger
Iran as an export hub 6
Potential export markets
Algeria
Morocco Tunisia
Libya Egypt
Lebanon Syria
Turkey
Russia
Turkmenistan
Afghanistan
Pakistan
Azerbaijan
Georgia
Armenia
Iran Iraq
> Due to its central geographic location and further positive location factors, Iran could serve as an export hub to other budget markets in the Middle East, CIS, Africa and Latin America
> Local manufacturers such as Iran Khodro are already exporting their cars to countries like Russia, Syria, Turkey, Iraq, Azerbaijan, Ukraine, Egypt, Algeria, Bulgaria and Venezuela
> Foreign manufacturer PSA has also announced plans to export 30% of their locally produced vehicles after re-launching manufacturing operations
> Iranian authorities announced a 50% tax break besides other incentives for foreign investors who build factories in Iran and export more than 30% of their products
Belarus
Ukraine
Sudan
Bulgaria
20 Roland Berger_Iran_A historical opportunity_Final.pptx
C. How to enter the Iranian market – 9 key success factors
21 Roland Berger_Iran_A historical opportunity_Final.pptx
OEMs need to thoroughly understand the national specifics before entering the Iranian market – 9 key success factors identified
Key success factors in the Iranian market
Source: Roland Berger
How to import cars How to sell cars
Know the complex import and taxation regulations
1
Establish a strong relationship with the relevant stakeholders
2
Assess, for each model individually, whether to produce locally
3
Leverage the existing supplier and manufacturing base
4
Know your customer requirements 5
Know the competitive environment 6
Cover the relevant markets with your sales & after-sales network
7
Provide the best sales & after-sales service in your segment
8
How to grow in the market
Decide on the right market entry strategy: Greenfield vs. existing local partner 9
22 Roland Berger_Iran_A historical opportunity_Final.pptx
Iran's authorities have introduced various initiatives to cut emissions and modernize the car parc – Opportunity for local production
Import and taxation regulations
Source: IHS Global Insight; Roland Berger
1) Based on CIF 2) Based on FOB
> Various charges are applied on the vehicle FOB/CIF
– Import duty of 32-75% depending on powertrain type and engine capacity
– Standard inspection, Red Crescent and other import and governmental charges amount to an additional ~7.5%
> Importers also need to prove scrappage of cars in order to get import allowances:
– Number of cars to be scrapped is staggered and depends on fuel consumption of the imported car
> Since 2013, the import of cars with engines above 2,500cc has been banned – Recently a change to the import duty regulation was proposed that would allow engines up to 3,000cc, but the proposal is still pending
Overview of import regulations
Import legislation Import costs
Engine capacity
> Limitation to 2,500cc for gas and diesel
> No limitation for hybrid/electric
Import tariffs1) 40-75% depending on engine capacity
Standard inspection1)
Check of conformity with vehicle standards
Red Crescent1) -
Other govern-ment charges2)
Add. charges imposed by different govern-ment stakeholders
Other import costs2)
Costs, e.g. for ware-house & transportation
Scrapping of old cars
1, 4 or 10 cars have to be scrapped for each imported car depen-ding on the fuel consumption
Emission standard
> EURO 5 and EURO 6 for new homologation
Fuel con-sumption
> Limited
Further legislation
> Homologation standards
> Scrapping requirement
Know the complex import and taxation regulations 1
23 Roland Berger_Iran_A historical opportunity_Final.pptx
Various ministries, institutions, authorities and communities are a part of the automotive ecosystem in Iran and need to be addressed
Most relevant stakeholders in Iran for automotive players
Source: International Monetary Fund (IMF); Oxford Economics; The World Bank; Roland Berger
Rel
evan
t st
akeh
old
ers
Role
Ministry of Industry, Mine and Trade (MIMT)
> Key authority in Iran for import regulation, vehicle import licenses and homologation of imported vehicles > All imported vehicles in Iran must conform to 54 Homologation Standards and are then signed off on by the Ministry of
Industry, Mine & Trade, the Department of Environment (DOE), Iran Fuel Conservation Company (IFCO) and National Standard Organization (ISIRI)
> Responsible for issuing production licenses for CKD assembly plants
Iranian Ministry of Economic Affairs (Iran)
> Supervisory and regulation authority for the National Treasury, the Central Bank and in general the financial markets, including the Securities and Exchange Commission, as well as the banking and insurance sector
> Definition of all economic, financial and taxation policies > Administration of Iranian customs including supervision of all activities regarding import, export, transit and collection
of import duties
Department of Environment (DOE)
> Responsible for enforcing environmental standards > Definition of all emissions regulations
Iranian Standard & Quality Inspection (ISQI)
> "Iran Standard and Quality Inspection Company (ISQI)" is the official auditor on behalf of the Ministry of Industry, Mine and Trade
> Responsible for ensuring the quality of products and protection of consumer rights > Definition and enforcement of standards required by the industry > Particularly relevant for the regular ISQI ranking1) and other evaluation procedures, e.g. during the homologation
process
1) ISQI ranks vehicle importers in terms of customer satisfaction
Establish a strong relationship with the relevant stakeholders 2
Relevance
24 Roland Berger_Iran_A historical opportunity_Final.pptx
Local CKD assembly results in significantly lower retail prices compared to CBU imports – Lower import duty is the main factor
Source: Roland Berger
Note: Minimum local content assumed to achieve lower import tariff; retail price excluding all costs paid by customer (VAT, registration tax, mandatory 3rd party insurance); HEV = hybrid electric vehicle, BEV = battery electric vehicle
Market price comparison CBU vs. CKD
85%
100%
Retail
price CKD
Savings Additional
cost
Retail
price CBU
Dealer
margin
Sales &
Distribution
Landed
cost
~80%
Scrapping Other import
related cost
Import
tariffs
CIF
~52%
FOB cost
& Shipping
Wholesale
price
~50%
Share [%]
20 21 32 39 33
Exemplary calculation
Value [EUR '000]
> Wholesale vehicle price accounts for only ~50% of the retail car price in Iran
> Main factors in the price increase are import tariffs, scrappage other import related costs
> No scrappage requirements and lower import tariffs/cost of CKD production result in total cost savings of ~20% and a retail price difference of ~15%
> CKD business case to be validated for each model – Low volume models to remain CBU
Assess, for each model individually, whether to produce locally 3
Import of HEV & BEV highly attractive due to low import duty of 4% and no scrapping requirement
25 Roland Berger_Iran_A historical opportunity_Final.pptx
Markazi
Hormozgan
Ilam Lorestan
Chahar Mahall
and Bakhtiari Khuzestan
Isfahan
Yazd
Kohgiluyeh and Buyer
Ahmad
Fars
Bushehr
Kerman
Sistan and Baluchestan
South Khorasan
Razavi Khorasan
North Khorasan
Golestan
Semnan
Qom
Tehran
Mazandaran
Qazvin
Zanjan
Hamadan
Kermanshah
Kordestan
West Azarbaijan
Gilan
Ardebil
East Azarbaijan
Ahvaz
Isfahan
Shiraz
Mashad
Qom
Tehran
Orumieh
Tabriz
Karaj
Kermanshah
Kashan
Babol
Golpaigan
Tehran is the automotive manufacturing hub in Iran, home to the main plants of IKCO and SAIPA and also various smaller producers
Main automotive plants and supplier network in Iran
Source: Press research; SAIPA; GTAI; IHS Global Insight; Roland Berger
> Iran Khodro and SAIPA are Iran's main automotive producers with capacities of more than 800,000 vehicles each – Total production capacity of 2.0 m units estimated
> Besides CBU production of local brands or older Peugeot/Renault models, typically Chinese and Korean brands are manufactured as CKD versions together with Iranian partners
> The vehicle manufacturing industry is backed by a strong supply network of more than 1,000 active parts manufacturers
Focus regions of Iran's automotive parts manufacturing industry
Leverage the existing supplier and manufacturing base 4
City with major production facilities
26 Roland Berger_Iran_A historical opportunity_Final.pptx
Customers have clearly defined expectations of a dealer, on the basis of which they make a purchase decision
Key success factors for Iranian customers
Source: Customer survey conducted by Roland Berger in Iran in April 2015; Roland Berger
Network coverage 1
Provision of other offers – Customer club, memberships, etc. 10
Knowledgeable, professional and friendly staff 2
Availability of the full range of technical support in workshops 3
Quality & speed of after-sales service 4
Availability of options, parts and accessories for cars 5
Reasonable cost of after-sales service 6
Favorable warranty options 7
Dealership appearance 8
Dealership brand image 9
Key success factors for the Iranian car market
Know your customer requirements 5
27 Roland Berger_Iran_A historical opportunity_Final.pptx
LON-35187-002-01-34.ppt
So far, only two dealers are official licensed by the OEM, but almost all brands have an officially recognized importer active in Iran
Overview of car importers
1) Officially recognized by Iranian authorities but, except for Setareh (Mercedes-Benz) and Ati Motors, not by the respective OEM 2) Currently only service center
Source: Roland Berger
Arta Motor Iran
Limited activities2) due to import restrictions
Car Importers
Ati Motors Persia Khodro
Multiple grey market players Irtoya
Afra Motors Alfa Motors
Ramak Khodro
Moin Motors
Setareh
Dealers officially licensed by OEM
Officially recognized importers by the Iranian authorities1)
Grey-market importers
Know the competitive environment 6
28 Roland Berger_Iran_A historical opportunity_Final.pptx
The top 10 car markets in Iran account for ~85% of automotive sales volumes – Majority sold through grey-market importers
Top 10 car markets in Iran
Source: Roland Berger
Top 10 car markets in Iran
Cover the relevant markets with your sales & after-sales network 7
> Iranian car customers are concentrated in 10 cities, which account for over 85% of automotive sales volumes in Iran
> Officially recognized importers by the Iranian authorities and dealers that are officially licensed by the respective OEMs focus on those main markets
> However, grey importers are active all around the country – In 2015, 88% of imported vehicles were imported by grey importers
> Grey market typically offers better prices due to lower regulatory charges (e.g. no warranty costs1))
> Since grey market importers can purchase cars through various sources they have a greater choice to offer the customers – Cars are mostly ordered on demand
Isfahan
Tabriz
Urmie Amol
Tehran
Shiraz
Karaj
Yazd
Kerman
Mashad
1) Warranty can be transferred to official dealer for a fixed amount
29 Roland Berger_Iran_A historical opportunity_Final.pptx
National authorities regularly monitor the quality of the officially recognized importers
ISQI1) – Sales & after-sales customer satisfaction index (CSI) 2015
1) ISQI: Iranian Standard & Quality Inspection
Source: ISQI; Roland Berger
Provide the best sales & after-sales service in your segment 8
Aft
er-s
ales
S
ales
Responsiveness > Sales transaction > Personal approach
> Simplicity of sales transaction
Attention to customer requirements
> Sales transaction diversity > Meet customer expectations in
model color options
> Conformity of contract and delivered car
Costs and time management
> Official time for contract drafting > On-time delivery > Delayed final payment
> Proportionality of sales price and car
Car delivery > Ease of access to dealer > Vehicle accessories delivery > Car in good condition > Defect removal during delivery
> Cleanliness > Optional training > Document delivery
> Time spent in the reception area > Repair duration and delivery on time
Timing
> Quality of repair
> Parts availability
> Personal approach
> Description of repairs and parts replacement
Quality
> Cost of repair Cost
> Dealer service strategy > Dealer accessibility Accessibility
Top 5 in after-sales – 2015 ranking
1
2
3
4
5
Dealership Brand
Persia Khodro BMW
Atlas Khodro Kia
Arian Motor Mitsubishi
Asan Motor Hyundai
Mazda Yadak Mazda
Top 5 in sales – 2015 ranking
1
2
3
4
5
Dealership Brand
Atlas Khodro Kia
Mazda Yadak Mazda
Persia Khodro BMW
Asan Motor Hyundai
Setareh Iran Mercedes-Benz
30 Roland Berger_Iran_A historical opportunity_Final.pptx
OEMs can leverage a local partner – Greenfield approach more difficult due to existing officially recognized importers
Assessment of market entry strategy: Greenfield vs. local partner
Source: Roland Berger
Decide on the right market entry strategy: Greenfield vs. local partner 9
> Build up a network with a clear strategy in mind
> Set up tight processes according to OEM standard
> Leverage know-how from other markets
> Full control over management
> Existing dealer and after-sales infrastructure
> Extensive knowledge of import regulations
> Typically, close relationships with the key decision makers within the respective authorities
> Existing brand image for Iranian customers
> Slower market penetration, due to lack of knowledge of customer requirements, import legislation, etc.
> Strong competition from existing dealer networks
> Unclear legal situation regarding officially recognized dealers – Potential lawsuits could delay an immediate market entry
> Lack of relationship with key decision makers within the respective authorities – May lead to time-consuming homologation, registration, etc.
> Processes not according to OEM standard
> Competence of management unclear
> Network to be reviewed strategically
Greenfield Local partner
31 Roland Berger_Iran_A historical opportunity_Final.pptx
D. What to do now – Next steps
32 Roland Berger_Iran_A historical opportunity_Final.pptx
With the lifting of sanctions, automotive OEMs must now quickly take the next steps to successfully (re-)enter the Iranian market
Next steps for automotive OEMs to enter Iran
Source: Roland Berger
Roland Berger has the necessary experience, in-depth knowledge and relationships with key stakeholders to provide you with further advice on entering the Iranian market
> Thoroughly understand the specifics of the Iranian market
> Analyze the existing dealership network
THINK
> Decide on whether to take a greenfield approach or to partner with a local dealership network
> Define for each model a CBU vs. CKD strategy
ACT