For more than a decade the traditional car manufacturing hubs in Italy, Germany, Japan, and the United States have been challenged by a host of developing countries who are changing the business with their lower production costs and geographic proximity to burgeoning markets in Africa and Asia.
Global demand for more affordable cars, coupled with Western investment, has shifted the automobile manufacturing epicenters east. For many, India holds the future of the auto production process, denoted recently by the Tata Group’s purchase of Jaguar and Range Rover. Within the MENA region, however, it is Iran that is making the car industry headlines, as it is set to establish its own presence in Asia and abroad with its car giant Khodro, branching into new markets and demanding attention for its forays into Europe, Africa, and Asia.
Since Iran’s auto industry inception in the 1960s with the Peykan — modeled after the British Hillman Hunter — the state-owned company Khodro, along with Iran’s second largest manufacturer Saipa, have come to expand their offers and now produce licensed versions of Peugot, Hyundai, Kia, Citroen, Nissan, Renault, Dacia, and Mercedes models.
Many believe that Khodro’s biggest strength lies in the manufacturing of these licensed versions of international brands like Mercedes-Benz, with whom Khodro signed agreements to produce both heavy duty trucks and luxury cars, such as the glistening E350, which have already begun to appear in Khodro’s arsenal of product offerings.
In April 2008 Manouchehr Manteqi, Managing Director of Khodro, announced a $575 million jump in revenues, representing a growth of 83%. Iran’s production centers in Tehran, Tabriz, and Khorasan are hoping to produce 520,000, 100,000, and 30,000 cars in the coming year, respectively, to which should be added the company’s overseas plants in Venezuela, Egypt, Azerbaijan, Syria, and Belarus, which plan to add an additional output of 20,000 cars.
Khodro has looked to the Turkish market as an avenue to greater regional production, with 2004 seeing the beginning of operations to export 3,000 cars to this regional neighbor.
Manteqi points to Khodro’s presence on Turkish soil as an indicator that “Iran has met European standards,” and looking forward, Manteqi has plans for his firm “to enter the European market via the Turkish market.”
Khodro will continue to rely on its Turkish partner, MYS Automotive, with the latter’s CEO, Yigit Seskir, noting that the two firms “are still investigating the investment invitations from various regions. For starters, some 35,000 automobiles will be produced.” The total cost of the investment, according to Seskir, ranges between $95 million and $320 million.
Iran’s car production facilities are also expanding to Africa, where Khodro Diesel will export 1,400 buses to Sudan in a deal rumored to be $140 million. The Ivory Coast, Gambia, and Senegal are also on the list of potential manufacturing bases.
However, not all news is good for the Iranian industry. Political confrontation between the country’s government and the US has threatened some of Khodro’s international transactions. Earlier this year, it was reported that various Chinese banks, under pressure from the US, decided to scale down financial operations with Iran, creating a dearth of capital and hindering business between Chinese Chery Auto and Khodro.
Moving production overseas in the hopes of feeding local appetites for low cost cars has pushed Khodro to improve production standards, resulting in higher quality automobiles. As of 2007, its latest model, the Samand Soren, passed the Euro III emission standard, breaking down barriers for entrance into the European auto market. Other improvements in Iranian cars are improved engine performance and gas mileage. In fact, Manteqi hopes to offer a hybrid-engine bus by October 2008.
Further movements into overseas markets are likely to affect Khodro’s production process by manufacturing cars as cheap as possible, but ensuring adherence to international standards so cars can be exported to a range of markets.
