TBY Do you think the current high demand for cars in Iran will be sustainable, especially after the removal of energy subsidies in the near future?

Javad Najmeddin
Javad Najmeddin is currently the President and CEO of Iran Khodro Industrial Group.

Do you think the current high demand for cars in Iran will be sustainable, especially after the removal of energy subsidies in the near future?

Over the past 10 years, the Iranian market has experienced a rising trend in passenger car demand. In 2009, when all global manufacturers were suffering from an economic and production downturn, we experienced a 13% increase in production. We forecast that this rising trend will continue in the upcoming years. For 2021, we forecast that demand will increase to 2.3 million units for the local market in terms of passenger car and light pickup vehicles. And precisely because of this, we are actually increasing our position in the global ranks. In 2008, Iran was ranked as the 16th largest car manufacturer in the world, and in 2009 we were the 12th largest manufacturer in the world. We believe that this increasing trend will continue until 2016, while from 2016 onward we will begin to experience flatter demand in the market.

There are some factors that may speed up or slow down demand. Among them is fuel price and the removal of subsidies. We believe that this will have a short-term effect, but after that short period the growth trend will return because a vehicle is perceived to be an investment commodity in Iran, and we can maintain this status in the future. On the other hand, there will be factors that will affect demand positively, and the most important of these is the introduction of a vehicle scrappage scheme. As a large part of the Iranian local fleet is made up of older model cars, replacing these vehicles can help compensate for the flatter demand caused by higher energy prices.

Do you have any special plans to replace old vehicles?

Yes, there was a proposal made by the motor vehicle manufacturers and submitted to the Iranian government last year. IKCO is one of the main figures behind this proposal, which outlines for the government how much liquidity is required to perform the scrappage scheme on a yearly basis. The government and the Central Bank approved it. Based on this proposal, IKCO will be responsible for replacing 200,000 vehicles and Saipa will be responsible for replacing another 200,000 of them within one year. The government has decided on a special loan to be given to the owners of older cars, and these vehicles will be valued as well. So, based on the price, the cars will be purchased, a loan will be given, and within this scheme the owners of older model cars will increase their purchasing power, and we can implement the scheme. This loan will be at least 60% of the car price.

“When all global manufacturers were suffering from an economic and production downturn, we experienced a 13% increase in production."

What is the current production capacity and nominal production of IKCO?

The production capacity of IKCO is around 1 million units per year for passenger cars and light pick-up vehicles. Last year we produced 680,000 passenger cars and light pick-up units. The year before we produced 600,000 units, and for this year we plan to produce 780,000 units.

The market share of IKCO is around 50% right now. Are you looking to maintain or increase your market share by 2015?

Our market share from 2008 to 2009 has increased, and we have planned that by 2015 we will achieve a 55% market share. By 2015 our production volume will be around 1.4 million units. We have begun taking advantage of increased demand, and in parallel we have planned to increase our production capacity.

What will be the focus of IKCO's strategy going forward?

For the past 10 years, our investment has focused on increasing production capacity. But for the next 10 years our investment focus will be on the development of new products. We have already established our production capacity inside Iran, and some of these facilities are still under construction. Our production facility in Tabriz is busy with the production of pickups. In Mashhad, we have another site that produces two Suzuki and Peugeot-branded cars and one IKCO-branded car. The capacity of this site is 150,000 units per year. The site in Kermanshah will produce light commercial vehicles, and is now under construction. In September 2010 our production site in Mazandaran, in the city of Babol, was opened by the Deputy President of Iran, and it will produce luxury cars. There is another site under construction in Shiraz that will produce one IKCO model and two Peugeot models.

As IKCO, we are at a certain stage as a car producer. We started with the assembly of cars, and then we increased the localization level of the parts and components. After that, we introduced the Samand project as a national car. With this project, we learned how to design the body and trim of a car. After that, we arrived at the development and design of the power train and related components. With this project, we introduced some engines to the market that are now available and are in use in IKCO vehicles. We are now ready to produce our own cars suited to our own needs. In the next phase, we are going to design platforms. The design of national platforms is on IKCO's agenda.

With the latest investments, IKCO is fast becoming an international company. Where are your production sites abroad and how did you decide to establish these production sites?

Parallel to the local sites, we have established some international sites with regard to the amount of export demand we have received. Some of them are still under construction. One of the largest sites for IKCO is in Syria. It was opened in 2009 with a capacity of 30,000 units per year. We have another site in Venezuela, which was opened in a joint ceremony by President Ahmadinejad and President Chávez. In 2009, the production capacity was 25,000 units. We have another large site in Belarus, which is under construction. The capacity will be 30,000 units per year. We have another large site in Senegal. This site will be opened in the first week of November 2010 by high-ranking officials from Iran and Senegal and is set to produce 25,000 units of IKCO-branded cars annually. In all of these production sites we produce IKCO-branded cars, with the exception of in Egypt. In Egypt we have a cooperation agreement with Peugeot's representatives and produce Peugeot-branded cars.

Does IKCO export cars from Iran to other countries?

Six years ago, we developed plans to export our products to target markets. In 2007, we reached our highest figure, which was around 45,000 units. In 2008 and 2009, due to the global financial crisis, we saw a decrease in exports. However, for 2010 we have planned on 60,000 units for export. We will achieve this export target through two methods. One of them is the direct export of CBUs (completely built units) to export markets, and the other is the export of CKD (completely knocked down) units to our international sites. We believe that we will reach these targets since we will be introducing two new products, and we have already received strong demand for these products.

In 2015, we are looking to allocate 15% of our production to exports. One of the hindrances to foreign exports is the regulations and standards that are being introduced in these countries in the coming years. As part of our product-development investment, we have developed our products in a way that they are able to meet these new standards and regulations.

For these product development plans, which will be the biggest part of your investments in the near future, and which international companies are you working with? Will you continue your relationships with Peugeot and Renault?

We have worked with Peugeot for about 22 years, and Peugeot is one of IKCO's major partners. It has been about six years that we and the Saipa Company developed a joint, common-platform project with Renault of France (Logan). Based on this, we have introduced the Tondar to the Iranian market. There is another partner, Mercedes-Benz, with which we have been working for about 30 years, specifically in the commercial segment, for buses and trucks. We have another company called Iran Khodro Diesel, which is responsible for the production of IKCO's commercial vehicles. In Iran Khodro Diesel, we have established a 30,000 unit capacity for the production of commercial vehicles. We have another Japanese company as a partner, Suzuki, with which we have recently started to work. We have plans to develop our cooperation with Suzuki in the coming years.

What percentage of auto parts is produced locally?

The localization rate depends on the product. For three products, Peugeot Pars, Peugeot 405, and Samand, the localization rate is almost 100%. For the Peugeot 206, we have achieved 60% localization. There is another product in development phase called the Runna. This will be introduced in the C-segment of the market. The price will be between $10,000 and $12,000. This will be introduced under the IKCO brand, and we have targeted 100% localization at the time of its introduction to the market. The Runna will be engineered, developed, and designed by Iranian engineers. Based on the lessons we learned from the Samand as a national car, and the technologies that we achieved and received, we plan to develop and introduce the Runna as the second brand for IKCO. One of our major targets for developing the Runna was exports, so that we are able to produce the Runna beside the Samand at our international sites.

Iran aims to improve its public transportation system, which means that the country will need more new buses. Does IKCO have any plans to address this demand?

Yes, one of the important plans of Iran Khodro Diesel is to increase the production capacity of its bus and minibus production lines. In 2009, we experienced a 10% increase in production of Iran Khodro Diesel. However, the demand for public transport vehicles in Iran exceeds that of the capacity of local manufacturers. In order to be able to decrease the level of imports in this segment, just as in the passenger car segment, we have increased the local content of our commercial segment. For example, for some heavy-duty trucks, more than 70% is localized and we are developing a national project called the National Bus in order to meet market demand. We expect to introduce the National Bus by the end of 2011.

What about the environmental pollution issue in Iran. Do you have any plans to improve emission standards?

Yes, this is one of the important points that we have taken into account. In Iran, vehicle manufacturers are obliged to meet Euro 2 and Euro 3 standards. In 2012, all manufacturers should meet the Euro 4 standard. In line with this requirement, we have plans to develop our engines in a way to be able to meet such standards by 2012. Besides the pollution issue, fuel consumption is also very important for us because of the increasing price of petrol. We have developed many plans to make our engines more energy efficient. We have developed plans to develop hybrid and electric vehicles using IKCO engines, and we have defined some projects in this regard. As you know, we have large gas reserves in Iran, and because of this we developed plans six years ago to introduce compressed natural gas (CNG)-capable products. Currently, 50% of the production of IKCO is capable of using CNG as a source of fuel. We have set a 70% target for next year. Taking into account the news about the increasing price of gasoline, we have seen that in the past few months there has been a sharp increase in demand for CNG-capable products in the market.