September 13, 2010 7:01 pm

S Korea ban ends Tehran’s Kia imports

Kia Motors of South Korea has suspended exports to Iran, ending one of Tehran’s most successful commercial alliances as international sanctions strike home.

Iran-sanctions-graphic

Iran-sanctions-graphic

Kia is a household name in the Islamic republic and its affordable, boxy Pride represents between 30 and 40 per cent of vehicles on the road.

The export suspension comes at a time of heightened tension between Iran and South Korea, a US ally that last week imposed unilateral sanctions on Tehran because of its nuclear ambitions. Kia has substantial interests in the US, which it may be trying to protect by cutting links with Iran.

Seoul implemented the embargo despite a vitriolic attack from one of Iran’s vice-presidents, Mohammad Reza Rahimi, who said South Koreans needed to be “slapped”. His rhetoric chilled many officials in Seoul, which gets about a tenth of its oil from Iran. The country is also a crucial market for South Korean electronics companies such as Samsung and LG.

Kia said it had stopped all exports to Iran last month, ending the sale of completed cars, assembly kits and spare parts before South Korea imposed its sanctions. Regardless of any legal restrictions, Kia assessed that its relationship with Iran was losing its commercial rationale.

Saipa, Iran’s second-biggest carmaker, built the Pride under licence with Kia until 2005 and hundreds of thousands of the cars clog Iran’s highways. The Pride sells for $7,500 to $8,800 in a country where the motor industry is fuelled by subsidised petrol selling for only $0.09 a litre.

The Pride has become the vehicle of choice for tens of thousands of Iranians who moonlight as cab drivers in a country where unemployment is a severe problem. They can earn as much as $1,500 each month, more than some highly qualified workers.

Kia had hoped that its Rio model would replace the Pride as Iran’s best-selling car. But Kia said only 17,040 Rio assembly kits were exported to Iran last year. Only 4,210 completed cars were sold to the Islamic Republic. Kia Motors’ total global exports were, by contrast, 731,000 vehicles.

Car analysts believe international sanctions have increased the costs of vehicle production in Iran by about 30 per cent. This figure could rise as Iranian businessmen say it is becoming increasingly costly to get around banking and transportation restrictions.

The government has protected Iran’s motor industry – second only in importance to oil and gas – through 90 per cent tariffs on imports.

Saipa declined to comment but one Tehran motor official, who asked not to be named, said the carmaker would not leave Iran for good because its market was too valuable.

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