Turning Crisis into Opportunity

Davood Mirkhani Rashti is a well known figure in Iran’s automotive industry. The narrative of the pains he has taken and the great effort he has made to develop this industry is an exciting piece of the history of Iran’s automotive industry. He kindly accepted our invitation to an interview, to relate to us and our readers his long memories of the Iranian automotive industry. Mirkhani Rashti, an engineer by education, tells us the story of the people who helped build today’s Iranian automotive parts industry.

When and how does the history of the Iranian automotive industry begin?
The contract regarding the production of the Paykan took shape in the years 1963-65. At the beginning, all the parts arrived in the finished state and they were simply assembled in this country to produce the final product, the Paykan. The then managing director of Iran National persevered and finally succeeded to have some of the parts that could be produced in Iran, replace imports. They began with producing the seats. Next, they invested in the manufacture of radiators and began to produce them. They also eliminated import of a number of other items that could be produced with the means then available in Iran (e.g. batteries, tires, window glasses etc).

The story of the import into Iran of Talbot’s production machinery and the beginning of Iran’s automotive parts industry: in an interview with Mr Davood Mirkhani Rashti, Secretary of the Iranian Automotive Manufacturers’ Association, Adl put a few questions regarding the past and the present.

By M.R. Adl
Source: Andishegostar Magazine

They invested - rather heavily in my opinion - in Iran National Co. So soon a foundry was created in this industrial complex. Then they set up facilities for machining cylinder heads which by itself requires a large plant. They also imported an engine assembly line and started to produce six major components of the engine. The rest had yet to be imported.

Was all this through domestic investment or was there any direct foreign investment as well?
One plant was set up in Mashad whose products were known as Mashad Parts. It continues to produce some parts even today (e.g. exhausts). Furthermore, much investment was also made in the production of Benz buses and minibuses. This was a joint venture by Benz, Khavar (an Iranian company based in Tabriz) and Iran National. The joint venture came to be known as Idem Co. So, as you can see much investment had been made, both domestic and foreign, in Iran’s automotive part industry before the Revolution. Of course the extent of investment goes beyond what I have so far pointed out. For example, the sand required for the foundry operations needs to be of a very particular type. So, they invested in this area as well and set up facilities which produced sand of the exact quality required. They also invested in facilities to produce ball-bearings.

Are there reliable statistics on the quantities of parts domestically produced and the quantities of parts imported?
Statistics indicate that at the time 35-40% of the parts were produced within the country and the rest was imported. At this time Pars Khodro and Jeep companies began to produce some of the parts they needed. However, no significant investment was made in independent parts manufacturing facilities.

What was the trend, then, that led to the present state?
At that time investors and their capitals enjoyed perfect security and such companies as Benz had invested more or less heavily in the country. In fact there was no difficulty in attracting foreign investment, except that, because of the political conditions of the time, foreigners were not quite willing to make any long-term investment. But Iranian companies often invested considerably. For example, Iran National began its operations with a mere ten million toomans (100 million rials) as its capital. They began their activities by building bus and, later, minibus bodies. The plant gradually expanded in size and facilities. Khavar, too, began with building bodies; later it produced chassis in its plants, and gradually further developed and expanded these lines. As I said, Iran National began with a mere 10 million toomans but by the time of the Revolution the company’s capital had risen to 1.5 billion toomans. The difference came from reinvestment of parts of the profits made. They did not take the profits out of the country; rather, they reinvested them. During all the years Pars Khodro operated, they regularly changed the models. They began by first producing Arya and Shahin (Rambler) models. Then they brought in newer models. They introduced Iranian made Buicks and Chevrolets to the market. But Pars Khodro never showed much interest in locally produced parts to substitute for imports. For example, they brought in their own press and mold for casting car bodies and painted them themselves as well.

Were any attempts made, before the Revolution, to make a new car?
When the contract for the production of the Paykan was concluded in 1965, this was an old model already. So, by 1977 the facilities used for its manufacture were worn out. Consequently, the managing director decided to produce a Peugeot model in Iran. By the time the Revolution took place a contract had already been signed, and in fact a shed had been built to house the production line. But all the plans came to an end.

How did this project advance after the Revolution?
During the ten years that followed the Revolution no investment was made in the automotive industry because of the American hostages taken in the US Embassy, the war with Iraq, internal economic difficulties and the economic sanction imposed on Iran. In 1986 Iran suddenly found itself faced with severe shortage of foreign exchange. But the people involved had not predicted this shortage in 1985. So, Iran Khodro had placed an order with Talbot for complete parts for 100,000 cars which Talbot had already produced and was about to ship to Iran. Suddenly, the price of crude oil fell and an economic crisis developed in Iran. The country’s exchange earnings dropped down to 5-6 billion US dollars which was just about enough to procure the basic needs of the nation. So, (car) production came to stop and Iran Khodro was forced to discharge 6,500 out of the 13,500 people that worked in the company. The company simply could not afford to pay their wages. Those who remained in the company concentrated on the areas of production that related to the ongoing war, as a national duty and religious conviction. They tried to help their country in the war. These activities just about managed to keep the company on its feet. There wasn’t enough money with which to bring the parts that were awaiting to be shipped. Talbot produced Paykan parts for Iran only because the policy of the time was that: “we do not want the Peugeot and shall be content with producing Paykans”. We had no money in 1986, so our orders remained in Talbot’s warehouses. Talbot shut down the plant and went to make Peugeots.

The contract regarding the production of the Paykan took shape in the years 1963-65.

inspect the idle production facilities of Talbot which were already on sale as “scrap”, and to buy them, if they were acceptable. In this way, we could produce all the Paykan parts we needed here in Iran. You see, there were over a million Paykans running in Iran at that time. We could keep them running through the supply of the parts they needed. A team was, therefore, sent to Britain, representing Iran’s then Ministry of Heavy Industries, the Development Organization and Iran Khodro. The team was accompanied by a number of Iran Khodro experts. They inspected the 4,000 items and purchased some 2,000 of them.

Do you remember the names of the members of this delegation?
As far as I can recall there was Mr Shariati and Mr Danai Moghaddam, both engineers from Development Organization, Mr Abdollah Zadeh and Mr Shoraka, members of the Board of Directors of Iran Khodoro, and Mr Hashemi, another engineer from Iran Khodro, and a number of other Iran Khodro engineers whose exact names, I no longer recall.

Were you yourself with the delegation?
I played no part in choosing the machinery since this was not my field of specialty. But I was there as the person in charge of the team. Anyhow, the board of ministers decided to allocate 13 million dollars to this project. A contract was signed with Talbot and the machinery, along with the 100,000 “packs”, were purchased with some reduction in the price.

You mean the “packs” were also bought as scrap?
No, of course not. We had an obligation, a commitment - and had to act accordingly. But it was agreed that we buy the “packs” and Talbot shall sell us the machinery and equipment (at a reasonable price). Some of the members of the delegation were convinced the price we had paid for the machinery was below the price of scrap, i.e. if we normally wanted to buy them as scrap we would have to pay more. So, we brought the machinery to Iran. A team was assigned, in the Ministry for Heavy Industries, to look into the matter. A general announcement was made and a number of people from the private and public sectors applied to purchase the machinery which we had paid for in dollars that had cost us 70 rials each. So, the machinery were very cheap (for the end buyer).

There must have been many people interested in making parts, considering the low prices of the machinery?
Exactly. A team was assigned, headed by Mr Khosrow Shoraka, to review the applications and assess the technical capabilities of the applicants, their existing set-ups, places of work, water and electricity facilities and the human resources. They were checked from the point of view of their ability to do the job: whether they were “in the business” or were buying on speculation, hoping to soon sell at a profit. Eventually 11 parts manufacturing plants were created. Initially we intended only to produce parts for that existing one million Paykans. We thought that if we produce gears for gearboxes, we would both satisfy the local demand and learn to mass produce this particular item which we could not yet make in large numbers.

Did the machinery and equipment have technical guides and manuals?
This had been foreseen in the contract. In fact we loaded into a truck all the instruction manuals and technical records that Talbot possessed, and brought them to Iran. I mean, we received all the technical information and drawings which they had not till then handed over to us. But, the truth is, at that time we did not have enough qualified engineers to study, understand and classify all the information, and to use them effectively. So, from then on, we took it upon ourselves to recruit qualified engineers and properly train our technical staff. What went on in Iran before the Revolution in the area of parts production was simple copying. There was no engineering procedure, not enough technical know-how, and so quality standards were low.

Do the people who bought the machinery and facilities then, still carry on their work today?
Yes, they are all still in business. I could even say that we have saved 100 times what we spent to buy the machinery, in foreign exchange; money that we have not used to import parts. Besides, the history of the Iranian automotive parts industry - based on proper technical-engineering know-how - began with the purchase of Talbot machinery.

Then, would you say that the emergence of this industry in Iran was simply accidental?
All we did was to simply turn the threat we were facing into a golden opportunity. The threats made by Talbot - that they would close down the factory and do so and so - were turned into a golden opportunity and we thus founded our parts manufacturing industry.

Tire Production in Iran

It is hoped that by 2002, some 90% of Peugeot parts will be made in the country. At the same time production of tire and tubes has been rapidly growing. Statistics indicate that in 1999, total production of tires and tubes amounted to 151,000 tonnes.

This is some 20% over and above the quantity produced in 1998 (Pars Tire Co. is the largest single producer of tires in Iran). It had been predicted that in 1999, Iran would produce 165,000 tonnes of tires, an aim of which 92% has materialized. The total nominal capacity of tire production in Iran is about 223,000 metric tons. It is planned that imports of tires should decline as Iran’s production increases. Presently, tire manufacturing companies operate in Iran under license from international tire manufacturers. Competition from imported tires forces Iranian manifacturers to improve the quality of their products. This will enable Iranian tires to ultimately replace imports completely. Even now production is getting close to nominal capacity. However, production of tires for trailers and tractors and of sealing bands has declined lately because of low demand. The ratio of actual production to target production in Iran has been 98% which is very encouraging.

The ratio of actual production to target production in Iran has been 98% which is very encouraging.

Auto Vehicle Production
In 1998-99 production of the various models of Pride showed a 50% growth and reached 66,738. In the same year 11,000 Sepands (Renaults) 6,129 Deawoo Cielos were produced. There were growths in production of all these includes in comparison to the years before (1998-1999). In 2000 there were 5,278 Peugeot Safirs (Persia) made in Iran. Also 26 new Paykan XVs, 826 Nassim DM, 200 Sinads, and 4,041 Deawoo Matizes. Totally, about 249,000 cars were produced in Iran during the year 2000. In the same year production of minibuses increased by 50% to 2,906. The growth was mainly in case of Benz and Hyundai, minibuses. In the same year production of trucks increased by 11% to reach 4,428 units. Production of 2-axle country vehicles increased by 20% to 3,949 units, buses were down to 2,468. Total number of vans produced that year was 34,000. The car manufacturers initially all equip their new cars with domestically produced tires and tubes, which is quite a considerable number. Some of the buyers of these vehicles are also bound to buy Iranian tires in the future . Therefore, the market for tires should grow as vehicle production grows.

Production capacities
Statistics indicate that the average ratio of production to nominal capacity of Iranian tires manifacturers has been 70%. It is also noteworthy that gradually an export market is developing for Iranian tires.

Export of tires
According to the statistics on the 11 month of production of tires in the year 2000, during this period Iran had a surplus production in the home markets. So effort were and continue to be made towards expansion of exports. During the said period 13,300 tonnes of tires, worth about 22 million USD were exported . As quality improves and production process becomes more efficiant the quality and price of Iranian tires become compatitive in the international market and exports are bound to expand. Exports of tires in fact began in 1997 when the state gave permits to the manufacturers allowing them to export up to 10 % of their production. Since then Iranian manufacturers regularly take part in regional trade exhibitions specially in the UAE and Suadi Arabia. By 1998 exports amounted to 23.5 million USD (at 1.53 USD/kg). In the year 2000 exports rapidly expanded, amounting to 22 million dollars that year.

Statistics indicate that in 1999, total production of tires and tubes amounted to 151,000 tonnes.