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Iran Autos Report Q3 2011
Business Monitor International, June 2011, Pages: 43
Business Monitor International's Iran Autos Report provides industry professionals and strategists, corporate analysts, auto associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Iran's automotive industry.
The imposition of international trade sanctions on Iran has done little to dent the unprecedented expansion of the country’s automotive industry. Following the 7.5% y-o-y rise in the sales of completely built units (CBU) in 2010, the industry is expected to post another 8% increase this year.
The expansion has been led by Iran Khodro (IKCO), which overtook its rival Saipa as the country’s leading vehicle producer for the first time in 2010 and is coming close to its long-held desire to control over 50% of the Iranian auto market. IKCO produced 774,965 vehicles in 2010, an annual increase of 20%. The company has set an ambitious production target for 2011 of 850,000 vehicles. IKCO has opened a number of production facilities over the last few years and in 2012 is scheduled to open another plant in Tabriz capable of producing 200,000 vehicles a year: impressive statistics for a car company anywhere, let alone one operating under the restrictions of international sanctions. The sanctions may have in fact helped IKCO. The Iranian government has invested heavily in the car industry and with restrictions on foreign trade and heavy tariffs on imported vehicles, domestic car buyers have had little option other than to turn to Iranian manufacturers.
In addition to the strong government support, IKCO has been looking to increase exports and establish joint ventures (JVs) with firms overseas. IKCO plans to introduce 10 new Iranian built models by 2018, starting with the Dena sedan next March. BMI holds the view that the Iranian car industry will continue its expansion over the next few years to record levels and that there will be a corresponding increase in exports, particularly to markets traditionally friendly toward Iran.
The rise in production and sales is only part of the picture, however. The Iranian auto industry has been heavily subsidised by the government and is not operating in a truly competitive environment. The government support has hidden financial weakness and operating inefficiencies and there remain serious concerns about consistent quality control. Past experience suggests that locally sourced parts do not always meet the required standards and with the move towards 100% Iranian built vehicles, there is concern over the reliability of vehicles once they get out on the road.
That reliability question mark is going to become increasingly important in the coming years. Growth in the Iranian auto industry has occurred through the expansion of the domestic car market, but as home demand becomes saturated and the two main players, IKCO and Saipa, look to build on their success they will have to increasingly look overseas for buyers. They will find that there are plenty of players in the global market producing reliable cars at a reasonable price with good service support. It is in that arena that, ultimately, Iran auto manufacturers will be judged.
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