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Iran Autos Report Q4 2011
Business Monitor International, Sep 2011, Pages: 50
Although BMI does not see economic growth in Iran surpassing 1.2% in 2011/12 and 2.4% in 2012/13, expansion in economic activity appears to be accelerating. As Iran’s auto sector continues to narrowly avoid direct impact from international sanctions, BMI expects stable vehicle production and strong sales over the next four years.
The sector has been expanding in recent years, owing in large part to the aggressive growth strategy of Iran Khodro Company (IKCO), which itself experienced sales growth of 18.0% in 2010, with plans to build 850,000 vehicles in 2011. IKCO has circumvented sanctions by producing more parts domestically and the company plans to increase exports. We note that large government subsidies and trade restrictions have reduced competition in the industry and facilitated strong domestic growth, although those measures have also hidden financial and operating weaknesses.
As the Iranian autos market becomes saturated, continued growth will rely on higher export volumes in markets abroad. IKCO has been expanding its ties with Turkey through joint ventures (JVs), for example. That said, while Iran's new car models meet Western emissions standards, issues of quality and operational weaknesses, as well as the potential for more stringent sanctions, signify that growth in the sector may be restricted to markets with limited purchasing power.
Nonetheless, in a bid to increase its share of the international market, IKCO intends to export 9% of its output in 2011, amounting to 75,000 vehicles, before reaching 16% in exports by 2014. The company exported 40,000 units in 2010, including 30% of the total production of its Samand model. IKCO also hopes to take a 51% share of the Iranian market in 2011, while improving the quality of its products.
In July 2011, IKCO outlined a detailed plan to be implemented over seven years. The plan involves designing and manufacturing two new platforms and 11 new cars. The carmaker also intends to adopt new marketing strategies in an effort to export 16% of its output in the coming three years and enhance its global market share. IKCO confirmed the plans in May 2011, revealing that the launches would be in place by 2018. Mass production of Iran's first domestically made vehicle, the Dena sedan, is set to commence in March 2012.
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