Iran's Auto Industry, created out of a need

by Amir Taheri

It employs over 500,000 people in production. It has grown to being between the 15th to 20th largest of its industries in the world. This years total production will be an all time high of 1.5 million. Iran's auto industry as described, has achieved much but still has much to aim for. It is similar to the French in many ways. It has had government protection that has smoothened its way to success by pushing out cheap foreign competitions that would be the death of it. It has also had French industrial support for the better part of 20 years. In comparison the British auto industry with almost no government protection is now either out of business or been sold off to foreign competitions.

Yet it still has much to improve upon including offering more options but today Iran's auto industry is also producing indigenous products, parts, and options as good as most of its competitors world-wide are offering. Iran's first home made car was the Samand. A car spiced and altered from the original Peugeot 405, now has served as the basis for its own Iranian creations. Iran Khodro the maker of the Samand and at times Iran's largest car producer, is the major driving force for innovation and new products in Iran. Producing for years the gas guzzling Paykan, based on the old British 1967 Hillman Hunter, now has ended and I have heard rumors that the whole line has been sold to Sudan, for further production. More recently, Iran Khodro, has been expanding production across Iran as part of a multi-aimed goal of both expansion and decentralized production. Whereas in the past, quantity had been the number one priority, in recent years, major efforts of improving quality have been undertaken to compete both in Iran better and also in the competitive international market.

The mid 90's was when for Iranian decision makers the realization came that Iran needed to have a strong auto industry. Starting around 1991, Iran for the first time after the revolution opened its market partially to foreign imports. It was a disaster. Coming after the end of the Iran-Iraq war, and the heavy reconstruction that the country was going through, demand for everything new was growing. It was in these years that Iran, experienced its first post-revolution debt crisis. Imports grew faster than oil and non-oil exports could keep up creating a hard currency shortage. Raking up billions in dollars of debt, something had to change. The largest burden on imports was foreign auto imports. It was now that Iran had to take a new direction, Iran simply could not afford the baby boomers buying now foreign cars. Imagine an import bill for importing 500,000 cars at an average price of $15,000, translating to $7.5 billion. This when $20 billion was the peak of all of Iran's imports. Imports were banned apart from the occasional personal automobile brought back from time living abroad. This was the time, as already mentioned, that year after year, quantity was the focus of Iran's major auto producers, Iran Khodro and Saipa. Joint venture deals were signed with French and Korean car companies to meet demand and share technology.

Fast-forward to today where Iran Khodro and Saipa, the two largest players are not only producing each around 750,000 cars, buses, and trucks in Iran but also have started plants in Egypt, Syria, Russia, Venezuela, and Senegal. Smartly each of these joint ventures have been produced on altered local names, and opened the market of neighboring countries for further exports. Since each of these countries operates in its own trade groups, these cars can be further exported to neighboring Asian, African, or European markets with minimal import taxes. The Samand is heavily popular in Senegal and Venezuela for its quality versus its price. One other important thing that third world countries require to become buyers of foreign cars is a constant supply of of spare parts. Easy maintenance has also made these cars popular in these countries. Both of the major players have big plans to expand in these countries with further improvements in quality and price.

Apart from producing cars based on foreign models, the new wave of innovation and changes have become more indigenous. After the original Samand came the Soren, that has more modern features and things that one finds in a new model in foreign countries, including navigation, rear entertainment systems, and laser guidance. A newer model has started being produced called the Runna. This again is an even more up to date automobile not too different than any product made by the big players. It is based on the Peugeot 206 Sedan. The 206 Sedan was an Iranian invention created with an investment of $250 million yet maintained the Peugeot name. Sold also in Europe by Peugeot, Iran Khodro called foul and started the Runna program to take their investment and translate into a return for Iran Khodro. Recently, the new Dena has also been introduced which if quickly mass produced can be a large revenue generator for this company. Having features similar to BMW, and sporting all the comforts of luxury cars on the market this car can start the next phase in Iran's auto industry. In the next 5 years, there are plans for a further 7 models. An SUV and pick-up truck are also to be introduced soon. Saipa, the other major competitor has introduced the Tiba, its first Iranian creation and will replace the Pride Kia. This car also has modern features and curves.

Foreign cars have also made a come back in recent years but not without a 90% import duty. This has meant that one either sees higher end German cars or less expansive Korean cars. One only has to walk past Jewelry shops, or other high earning businesses to see Mercedes SLKs or BMW 5 and 6 series parked outside their businesses. The Koreans also with their improved quality have taken a large market share and look to take even a higher percentage once import duties come down. After the Korean imports, Japanese autos are next in line with the major player being Toyota and Lexus, also part of the Toyota family. Modern joint ventures also provide for Mazda, Suzuki's, and Citroen productions.

Further quality needs to be improved and variety of local cars produced increased for a successful auto industry. A suggestions that I could also make is reduce the duty on luxury cars without removing the heavy duty on cars competing with Iranian productions. This way the huge market of consumers already buying Japanese and Korean cars but currently paying as much as if they were buying a Mercedes, BMW, or Lexus can instead receive value for their money by switching to buying luxury cars. This will also further motivate local companies to provide luxury quality standards in their productions. Created out of a need, and providing hundreds of thousands employment, Iran's auto industry can expect a bright future ahead but needs to keep its foot on the gas peddle (pardon the pun) to join the top 10 auto producing countries.

Editor’s Note: Amir Taheri is one of the authors of Uskowi on Iran. His weekly columns appear here on Fridays.