PARIS/DUBAI Peugeot (PEUP.PA) and Renault (RENA.PA) are among Western firms sending executives to an automotive conference that opens in Iran on Saturday - firing the starting gun on a more overt race for post-sanctions business.
The French carmakers are poised to resume vehicle sales in Iran, using a six-month easing of trade restrictions to reclaim their market position before the mass arrival of competitors behind any permanent detente that could follow.
Production by Iran's domestic car industry, unusually developed for the Middle East, peaked at 1.6 million cars in 2011, the year crippling new sanctions were introduced. Leading manufacturer Iran Khodro accounted for about half of that output.
Khodro and No.2 manufacturer SAIPA have a handful of foreign production partners - including South Korea's Kia (000270.KS), Suzuki Motor Corp. (7269.T) and the two French manufacturers - and exported some of their vehicles.
The conference in Tehran, planned before last weekend's Iran nuclear talks breakthrough, includes representatives of German, South Korean and Japanese manufacturers on its billing.
Volkswagen (VOWG_p.DE), Suzuki (7269.T), Kia and affiliate Hyundai (005380.KS) all denied Iranian media reports that they were to attend, but Renault and PSA Peugeot Citroen confirmed they were sending representatives.
In return for undertakings by Tehran to freeze key parts of its nuclear program, the so-called P5+1 powers agreed on November 24 to a six-month suspension of trade sanctions on selected goods including auto parts.
The easing, due to start by early January, is good news for the French, which until recently shipped semi-built cars to Iran as component "kits" for assembly by local partners Iran Khodro and SAIPA.
U.S. carmakers meanwhile remain barred from Iran by domestic rules including a trade embargo that is not subject to any immediate relief.
In the event of a sustained diplomatic thaw, Iran has potential to be a profitable, fast-growing auto market soon exceeding 2 million vehicles annually, analysts say.
"There's enormous and immediate interest in Iran," said Thierry Coville, an Iran specialist at IRIS, a French international relations think-tank.
Sanctions relief on autos brings tangible benefits to ordinary Iranians that may help President Hassan Rouhani win domestic backing for further concessions underpinning a definitive nuclear deal in six months, Coville said.
"It will have a pretty swift impact in a sector that is a big source of Iranian jobs - so this is more than just symbolic."
More than 100,000 auto workers were laid off as sanctions hit Iran's biggest manufacturing industry, with plants now running below half capacity, according to official data.
Combined with the steadily rising average age of vehicles on Iran's roads, that spells enticing levels of replacement demand that could be unleashed if full market-opening were followed by the taming of inflation and a stronger rial.
Peugeot's 458,000 sales amounted to a 29 percent market share at the 2011 peak, while Renault claimed 5.9 percent of national registrations. Former President Mahmoud Ahmadinejad drove a Peugeot 504.
But the significant tightening of U.S.-led sanctions on the oil industry and financial transactions has eroded production to 292,000 cars in the first half of the current Persian year, which began in March.
Western carmakers appear to have been positioning themselves for months ahead of an anticipated reopening.
"We haven't been sitting on our hands," a source close to Renault said, adding that some Iranian production was ongoing from stocks of components that pre-date June's U.S. executive order halting parts shipments.
The French carmaker has been in talks for weeks on a resumption of deliveries, the source said.
Peugeot's situation is more complex because shipments have been halted for longer - since February 2012 - and because the Paris-based carmaker is pursuing a strategic alliance with 7 percent-shareholder General Motors (GM.N).
Peugeot hopes an easing of sanctions will restore the 150 million euros ($204 million) they wiped from profit, finance chief Jean-Baptiste de Chatillon told analysts this week.
"We would need several weeks to start up these operations again," a company spokesman said. "But we're not there yet."
Peugeot insists it was financial sanctions that halted the trade, 14 months before Renault followed suit. But GM told investors it had received assurances that Peugeot would end Iran sales before approving their alliance.
The U.S. carmakers themselves may not be merely watching from the sidelines.
Ford (F.N) and GM both deny knowledge of third-party importers that have sprung up in Iran to offer their vehicles online - alongside those of other major carmakers.
But Ford has been identifying potential distribution partners in Iran so that it can "move quite quickly" when the time comes, a source with direct knowledge of the matter said.
The company "continues to follow all legal requirements expected under the current sanctions regime and will monitor the situation carefully", a Ford spokesman said, declining to comment on any preparations underway.
GM says it was not behind a recent Iranian advertising campaign for its cars, or a shipment of Chevrolet Camaros that arrived in the country earlier this year and were widely photographed by local media.
"We are a U.S. company and we adhere to U.S. laws and regulations as well as sanctions," a GM spokesman said. "That's why we don't have any dealings with Iran."
American carmakers, largely absent from Iran since the 1979 revolution, must tread with particular care to avoid riling the powerful U.S. pro-sanctions lobby or wider public opinion, still wary of the Islamic state's ambitions.
"Those who think it's open season on business in Iran are sorely mistaken," a U.S. Treasury spokesman said this week. The government still owns about 2 percent of GM, a legacy of its 2009 bailout.
Still, the French may not have carte blanche to reclaim their former share of business. One complication may arise from the tough line taken by Foreign Minister Laurent Fabius in the final phase of nuclear talks.
Days before the deal, Paris and Tehran traded barbs after France had dismissed an earlier draft as too soft, ending the previous round of negotiations.
French government officials play down the fallout.
"I don't think our intransigence has hurt us," said one diplomat. "I spent three days with the Iranians and I didn't sense they had any problem with us."
Even so, Iran's authorities may not want a return to business as usual.
Iran Khodro has said sanctions easing is an opportunity to add new production partners, diluting Peugeot and Renault.
Director general Hashem Yekeh Zareh also told Iran's IRNA news agency the company was seeking greater self-sufficiency to put it beyond the reach of any future trade restrictions.
"We must ensure that shortcomings in our previous relationships with global car manufacturers are not repeated," Zareh said, "so that issues such as sanctions cannot create challenges for the national car industry."
($1 = 0.7345 euros)
(Additional reporting by Gilles Guillaume, John Irish, Justyna Pawlak, Anna Yukhananov, Martin Dokoupil, Bernie Woodall and Arshad Mohammed; editing by Philippa Fletcher)