Automotive

Iran’s automotive industry is the country’s fastest growing industry. Between 1995 and 2000, its average annual growth rate was 27.2%, which is 5.5 times that of the country’s average industrial growth as a whole and 7 times that of the Gross Domestic Product (GDP) increase.

Currently, Iran has a population of 64 million, almost one percent of the world’s total, but its share of the total global car production is a little over 0.6%. Despite the fact that in 1994 the country started working towards increasing its significance in the industry, due to lost opportunities this progress has been limited to assembly, parts production and design.

Market Overview

Iranian manufacturers currently produce six different types of vehicle, including passenger cars, 4WD, trucks, buses, minibuses, and pickup trucks. According to the latest statistics provided by the Ministry of Industries and Mines, there are some 3.8 million vehicles in the country. The table below demonstrates the number of units manufactured in each category from 1994 to 2001.

Total Automotive Production (1994 – 2001

Year

1994

1995

1996

1997

1998

1999

2000

2001

Passenger Car

49,004

73,907

95,653

136,275

157,049

187,788

249,076

321,181

Pickup

12,734

7,833

14,698

24,167

3,3831

28,600

34,665

43,575

4WD

4,563

5,272

8,232

8,857

7,085

4,893

3,949

5,083

Minibus

1,104

336

223

1,344

505

930

2,984

1,010

Bus

925

1,067

1,049

994

2,476

3,848

2,468

1,391

Trucks

3,984

2,733

4,101

4,810

5,278

3,973

4,438

6,283

Total

71,314

91,148

123,938

176,447

206,224

230,032

297,580

379,367



Source: “Automotive Industry”, SAPCO’s monthly publication


Source: “Automotive Industry”, SAPCO’s monthly publication

More than 40% of the cars in Iran’s automotive fleet are over 20 years old, a figure that only a few other countries can likely match. The government has set an objective not only to produce more cars to meet the ever-growing demand, but also to produce enough new cars to replace the old ones.

Age Dispersion of Cars in Iran, December 2000

Age (Years)

Market Share (%)

0-5

32.9%

6-10

10.9%

11-15

3.2%

16-20

10.6%

>20

42.4%


Source: Ministry of Industries and Mines

If the automotive industry’s development were to be defined as a process consisting of 6 phases - as summarized in the table below - Iran has so far only completed the first.

The 6 Phases of Iran’s Automotive Industry

Phase

Iran

1. Assembly

1969 – 1989

2. Spare Parts Industry Development

1990 – Present

3. Auto Design

1975 – Present

4. Mass Production

1975 – Present


5. Establishing Export Bases


Not Yet Experienced

6. Mass Auto Export

Not Yet Experienced


Source: 1999 Automotive Industries Conference in Tehran

Iran has accomplished the assembly stage mainly due to its domestic manufacturers being under licensing contracts with foreign companies. Phases 2 through 4 were initiated more recently and are not far from reaching their goals, which some economists predict will be realized within 2-3 years. However, in terms of establishing export bases and mass automobile export, the country has a great deal of catching up to do.

Conventional wisdom would suggest that until phases 5 and 6 are complete, or at least well underway, the government will continue with its policies precluding automobile imports. This is due to the fact that Iran’s auto manufacturers won’t be able to compete with their more experienced foreign competitors hence the domestic industry will suffer.

The Iranian automotive parts industry consists of approximately 1200 companies, which include those affiliated to vehicle manufacturers as well as independent firms. The industry consists of two primary sectors: Original Equipment Manufacturing (OEM) suppliers, which produce parts for auto makers, and After-Market Parts Manufacturers (AMPM), which produce replacement parts for vehicles.

While Sazegostar and Sapco, the respective purchasing arms of Iran Khodro and Saipa (the two largest Iranian auto manufacturers), have urged the parts makers to improve the quality of their products, most of the parts produced do not meet international standards. To the automakers’ benefit - and to provide the parts industry with an incentive to raise its standards, the government has eased regulations and tariffs on the import of certain auto parts.


Opportunities

The demand for automobiles, particularly passenger vehicles, far exceeds the supply. In fact, more than 450,000 people pre-purchase automobiles every year and wait approximately two years to receive them. It is estimated that the total annual demand for light passenger vehicles in Iran is approximately 600,000 units.

Although its goal was to reach an annual production of 500,000 units by 2001, the industry failed to reach this target by almost 130,000 units. As a result, and for various other reasons, the original aim has now been postponed until 2003. With new lines entering the market in the near future and foreign companies rushing in to take advantage of the opportunities in the Iranian market, attaining the target production is expected to face no major obstacles.

In comparison with other countries the number of available automobiles per capita in Iran is very low. According to statistics for 2001 there was one automobile available for every 16.8 people in Iran. This clearly shows the capacity of the market for more automobiles. The statistics for other countries is listed below.

Cars Per Person in Various Countries

Country

Persons/cars ratio

Iran

16.8*

Turkey

9.8

South Korea

8.2

U.A.E

5.7

Saudi Arabia

5.6

UK

2.1

EU Average

2.0

Japan

1.9

Germany

1.8

Canada

1.8

USA

1.2

Note: The number of automobiles includes buses, trucks and minibuses as well as passenger cars.

* The original number provided by SAPCO was 22. However this number has been modified based on the available data and information, and a population of 64 million, to 16.8.

Source: SAPCO

Although the government of Iran has passed laws and regulations to support the domestic production of spare parts, there is a large demand for foreign parts due to their levels of quality and durability.

The strategic location and low costs of both natural and human resources that Iran benefits from make it very attractive for foreign investors. In fact, many foreign companies currently active in Iran are here not only to take advantage of the opportunities for inexpensive assembly projects, but also use the country as an export base for the Persian Gulf states and Central Asia.


Market Access Issues

The government has and still is protecting the automotive industry from its more experienced and financially stronger foreign competitors. It is trying to promote export by eliminating barriers - reducing and even removing some tariffs and taxes - and has had some degrees of success. Even though the latest Automotive Law does not prohibit the import of automobiles, the firm position of the Finance Ministry and the Central Bank of Iran has essentially put an end to the import of automobiles since 1995.

Foreign companies are encouraged to take advantage of the Iranian market, as long as they export a predetermined percentage of the Iranian production to other countries. For example, France’s Citroen is currently in partnership with Iran’s Saipa, which assembles the Xantia. According to the agreement, 70% of the cars manufactured in Iran are to be exported back to France, which apparently also includes spare parts. Ultimately, the Iranian automotive manufacturers want - and need - the technology, expertise and management skills that foreign companies can provide.

In terms of quality, domestic automakers and the Ministry of Industries and Mines are trying to adopt policies that will raise the standards of Iranian production, in order to be able to compete in the international export market. The government is urging - and in some cases forcing - the domestic and foreign automakers operating in Iran to comply with certain standards specified by the Ministry of Industries and Mines. One of the government agencies in charge of quality control is the Iranian Standard & Quality Inspection company (ISQI), which was established in 1989 specifically for the automotive industry. Its main activity involves working closely with Iranian manufacturers to make sure that their products meet certain international standards, particularly with regards to passenger safety and environmental protection. The auto manufacturers are required by law to be ISQI certified, which involves passing various tests and inspections that comply with the 55 European standards.

Iran’s automotive market is not easily accessible to foreign companies. Imports are only allowed under special circumstances; and at the moment, the authorities generally steer clear of discussions concerning the adjustment of import policies.

The government is looking to protect the domestic industry and is determined not to see it weakened by an influx of foreign companies. At the moment Iran’s automotive industry is vulnerable to real competition; hence the government believes that the door to imports should be opened very gradually and under careful supervision.


Major Competition

There are currently 13 public and privately owned automakers in Iran, of which two - Iran Khodro and Saipa - account for 93.6% of the total domestic production. Iran Khodro, which produces the most prevalent car in the country -the Paykan -, is by far the larger with 60.9% of the market, while Saipa contributes 32.7% of Iran’s total production. The other car manufacturers, such as the Bahman Group, Kerman Motors, Kish Khodro, Runiran, Traktorsazi, and Shahab Khodro, together produce only 6.4%.

Iran Automotive Industry’s Market Shares (September 2001)
Source: SAPCO

Several major foreign companies are also active in Iran. Some of them, such as B.M.W, Mercedes Benz, Toyota, and Volkswagen, have been present in the market for a long time, while others including Daewoo and Hyundai have emerged since 1991.

The following companies have signed cooperative agreements and their products are either already on the market or are to be introduced in the near future:

  • France’s Peugeot with Iran Khodro. Their products are the Peugeot 405, Pars (Persia) and 206. The Peugeot 206 entered the market in the fourth quarter of 2001. [Note: To Peugeot’s displeasure, Iran Khodro produces another automobile under the French automaker’s label, called the “RD” (as in “research and development”). The RD consists of the Peugeot 405’s body with the engine and parts of a Paykan.]

  • Korea’s Kia Motors with Saipa, producing the Kia Pride.

  • France’s Citroen with Saipa. The product is the Citroen Xantia, which entered the market in the fourth quarter of 2001.

  • Korean Daewoo and Kerman Motors. The products currently on the market are the Daewoo Cielo and Matiz.

  • Optimus of the UK with Renus. The Anna, which is a coupe, was originally scheduled for release by the end of 2001, though at this point it is uncertain if this sports car will actually be produced in Iran.

  • Proton of Malaysia with Zagros. The estimated production is 25,000 units for the first year and was originally scheduled to enter the market in 2001, but is experiencing delays.

The following companies are still in the negotiation process and no contracts have yet been signed.

  • Volvo of Sweden with Mazandaran. The agreement is to assemble Volvo cars in Iran.

  • MG Rover of UK with Dastan. The agreement is to assemble Rover cars in Iran.


Useful Information Sources / Websites

Local Auto Manufacturers

Iran Khodro Industrial Group: www.ikco.com

Saipa Industrial Group: www.saipacorp.com

Bahman Group: www.bahmangroup.com

Mazandaran: www.mazandaranind.com

Zagross: www.zagrosskhodro.com

Kish Khodro: www.kishkhodro-sinad.com

Part Manufacturers:

Supplier of Automotive Parts Company: www.sapco.com

Sazeh Gostar Saipa Co.: www.rahianhooshmand.com/aboutsgs.htm

Data as of June 2002

© Atieh Bahar Consulting 2003