Boston, MA -- (SBWIRE) -- 04/15/2014 -- The medium-term outlook for Iranian auto production remains cautiously optimistic, reflecting the temporary deal reached between the US and major powers over the future of its nuclear programme in November 2013. BMI's Country Risk team's core view remains that talks will continue over the coming years, with the potential for a long-term agreement to be found, although we cannot preclude a breakdown in talks over the coming quarters, which could unleash a Western military response. Over the very near term, there is the chance that the six-month interim arrangement agreed in November 2013, which expires on July 20 2014, could be extended by an additional six months should both parties agree.

Data reported by Iran's IRNA news agency in January 2014 suggest that there is cause to be less bearish in our estimate for 2013 full-year vehicle production. For the first 10 months of the Iranian calendar year, ending March 21 2014, the industry produced 576,663 units, down 10.5% from the previous year.

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We consequently believe there is good reason to upgrade our production estimate for 2013, while the return of French carmaker Renault, and the potential for others to follow suit, creates significant upside potential for at least the early part of 2014. This supports our forecast for a return to positive production growth of at least 10% for passenger cars in 2014, although this will be subject to revision based on sanction developments.

Based on a poor first half of 2013 and perceived ongoing headwinds, we had previously projected a 50% decline in vehicle output for the calendar year 2013 (January to December), as based on OICA reporting periods. We believe that the moderation in the output contraction over the Iranian year so far can be attributed to the return of some models to the country's line-up as national manufacturers source domestically produced parts, as well as the ramping up of production of the 'national cars', such as Iran Khodro Company's (IKCO) Runna. As such, we have upgraded our output estimate for 2013 to a 28% contraction.

Looking ahead, the temporary deal reached with the P5+1 group to ease sanctions on the country provides the opportunity for a number of international carmakers to return to the market and restore at least some lost output. With the initial deal in place for just six months, while a more long-term solution is negotiated, we would expect the most significant uptick to be in the early part of the year until we know more regarding the future beyond the six-month period.

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