In an exclusive article for just-auto, autopolis’s Graeme Maxton reveals the identity of an almost unknown large, fast growing carmaker hidden inside one of the world’s fastest growing markets. Appended at the end of the article is rarely seen Iranian vehicle production data at model level detail.

Okay. Here’s a puzzle. Think of a carmaker. A carmaker that’s big. A carmaker that’s in the world’s top 20. A carmaker that exports. That’s bigger than Britain’s MG Rover. (Okay, that’s not too difficult.) But one that’s almost twice the size of Malaysia’s Proton too. That has a very high domestic market share in one of the world’s fastest growing auto markets. A market that is two-thirds the size of the Chinese car market.

Iran Khodro is the largest carmaker in Iran – and it’s growing fast

Give in?

You should, because you’re very unlikely to guess. It’s a company called Iran Khodro and if you haven’t heard of it now you soon will.

Iran Khodro is, as you might have now worked out, the largest carmaker in Iran. Well, so what? you might say. Who wants to do business with Iran?

Actually, a growing number of people. It may still be a difficult place to get into. It may still face US sanctions and has other troubles that stem from a religion-based government that is often at odds with US and much global opinion. But, aside from the politics, the country is changing fast. If the politics ever catch up, Iran will be one of the world’s most exciting new auto markets.

GlobalData Strategic Intelligence

US Tariffs are shifting - will you react or anticipate?

Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.

By GlobalData

Learn more about Strategic Intelligence

Iran Khodro makes the Paykan, based on the Hillman Hunter, a relic of 1970s Britain

This year around 450,000 new cars will be built and sold in Iran. Better still, the order books are full for two years ahead. The demand was so high a few years ago that buyers often sold their vehicles as soon as they received them, such was the premium they could receive.

So what’s the hitch? Well, for one thing, the technology. Iran Khodro still makes the Hillman Hunter, a relic from 1970s Britain. It even makes a natty new pickup version. “We’ll build more than 130,000 Hunter’s this year”, Dr Sakhavi the factory’s American-educated quality consultant says proudly. On a line transferred from Linwood in Scotland decades ago.

The technology and products are being upgraded though. A few years ago the company started making the Peugeot 405 as well, on lines transferred from France. Now it makes spare parts for its French associate too. It has also developed models of its own, including the Persia, which is a facelifted 405, and the RD. This blends the body of the 405 with the drivetrain on the Hillman, an odd marriage for sure. But what it loses in performance it gains in local content. Almost the entire vehicle is made in Iran. Later this year, the company will introduce the latest Peugeot 206. It will introduce the X7, an entirely locally designed car in 2002.

So the technology is improving, partners are being found and new business is being developed. The company has even set up a parts procurement centre and an engineering business, to improve what it does still further.

The company began making the Peugeot 405 a few years ago, and will introduce the 206 this year

Then there is the export potential. The company – and its smaller competitors – already export a limited numbers of vehicles. As Dr Amir Albadvi the company’s strategic planning manager points out, Iran shares 14 different borders. While it gives the mapmakers something to test their colouring skills, it also gives the country access to places most others wouldn’t touch. Turkmenistan, Azarbaijan and Tadjikistan are hardly on GM or Ford’s list of top potential export markets, after all.

That’s not to say exporting to these places is easy. Iran Khodro shipped a few hundred cars up to Turkmenistan recently, as part of an initial sales contract. When they went up to check how the vehicles had performed, six months later, they found most of them were wrecked. It wasn’t that the vehicles were no good. It was the fact that they had been driven 700km a day, on roads where achieving an average 30km an hour is a challenge. They’d been used around the clock. And they’d never been serviced nor even had their oil changed. One of the company’s engineers took a measuring device with him for the journey north. He wanted to see how many potholes they’d drive through, to calculate what sort of suspension specifications the markets needed. He stopped the machine after two hours because it told him all he needed to know. There had already been 24,000 potholes.

Luckily these are not the only places with export potential for Iran. There are also the Arab countries, particularly along the North African coast and around the Middle East. The demand for vehicles is stronger there and the markets are greatly under-supplied. While Iran is not, like these places, an Arabic country, it does at least share a religion and years of isolation from the West. That makes doing business slightly easier too.

Iran is rich but stagnant and economically isolated

Behind all this though, Iran also has a problem and it is one that it will need to address soon if its auto sector is to develop properly.

Imagine, for a moment, that you are from a very distant planet and that during a brief visit to Earth you win the lottery. When you return to your struggling world your pockets are full of cash but there is nowhere to spend it. This, pretty much, is the problem facing the country. It has enormous wealth – but of the wrong sort. It has masses of oil and gas and with the hike in prices in the last 18 months, pots of money in the bank. But because of the sanctions it can’t spend it in conventional ways. Nor can it convert it. In one way, the country is fabulously rich. It has billions of US dollars in the bank. But because no one wants to invest in the place, there is nowhere to spend them.

So, what to do? Iran is rich but stagnant and economically isolated. The population is still growing rapidly and mostly poor. And there are all sorts of political problems.

Iran is increasingly aware of the need to re-establish relationships with US and other western firms

Given the situation, Iran Khodro wants to become a role model for Iranian industrial development. Mr Esmaeli, vice chairman of the company, believes “the oil is a curse” in some ways. It has brought the country wealth but not prosperity. It has done nothing for long-term development. It has created few jobs. It has built no skills. And it has cemented no new economic foundations. The oil has brought trade but not industry. Mr Turkan, the head of Iran’s Industrial Development and Renovation Organisation puts it more succinctly. “Iran needs to reintegrate itself into the global economy and make an intelligent contribution, where there is give and take. We don’t just want to play the role of the buyer”.

Many of the most influential people in the country are now thinking about how they can invest for the future – and a key part of that is building an auto sector. Iran is increasingly aware of the need to re-establish relationships with US and other western firms. It is thinking about how it can rebuild local industries and embark on what may be a 20 year plan for economic regeneration. To re-create Iran, as it once was, as an economic powerhouse in a politically sensitive region.

Convincing some of those in the government and indeed many Iranians that this is the best policy is still difficult. Many are still wary after so long being spurned internationally. Some are even angry that the country that once was their greatest ally – the US – now fingerprints all Iranians that enter its shores. “One day we were allowed to enter the US freely – we didn’t even need visas”, says one industrialist. “The next, we’re treated like criminals.!”

There is little doubt that Iran is in something of a fix. With so much at stake it is likely to be some time before it becomes clear which direction the country will take. Even so, for the world’s auto industry, there may be growing reasons to rebuild some sort of dialogue with the place. At the very least, there is a growing justification for maintaining a watchful eye. For the Iranians themselves there is simply a need for change.

By Graeme Maxton
gpmaxton@autopolis.com

Sign up for our daily news round-up!

Give your business an edge with our leading industry insights.

Sign up