Why the Iranian motor industry is really hotting up

It may be a pariah state, but Iran is becoming an automotive power, says Mark Piesing

The 30-year Iranian love affair with the Hillman Hunter – aka the Pakyan – may have been a butt of pub jokes in the UK, but the Iranian auto industry is actually the 16th largest in the world, producing one million buses, lorries and cars a year.

Not bad for an industry that started in 1957 by assembling Jeeps, and is still subject to US sanctions because of its links with Iran's government and military, even though all motor industries have such links.

According to professor Tom Donnelly, the director of the Motor Industry Observatory at the Coventry University Business School, "Iran is a major player in the Middle East and it does have ambitions to play with the big boys of the motor industry, with a target to raise production to the 1.6 million vehicles a year by next year."

A target which, if achieved, would make it the same size as Britain's. "The $6m question is: can they do it? After all, it's a country which thinks the Peugeot 206 is a status symbol." They have the pedigree. In the 1970s, Iran was the only country outside of the US considered good enough to assemble Cadillacs.

With two new models out this year, the Iranians are in a hurry to make up for the years of economic stagnation since the revolution in 1979, and the Iran-Iraq War. Provided that George Bush doesn't bomb them back to the stone age first.

Launched in February, the Iranian-designed £6,000, 1.8-litre, five door Khodro Samand Soren "national car" leads the charge on to the global stage. The bloggers on www.shia chat.com have described it as "one of the most beautiful cars in Iran". The Soren is a heavily made-over version of the original Samand, which was itself based on the Peugeot 405.

It is joined by the cheaper, £4,500, 1.6-litre 16v five-door Tondar 90 – aka the Renault Logan global car – produced jointly between Renault, Khodro and Société Anonyme Iranienne De Production Automobile (SIAPA). The Tondar is sold in the UK as the Romanian-made Dacia Logan.

Khodro, founded in 1962, and the 41-year-old SIAPA are the two nationalised giants of the Iranian industry. Khodro alone produces 500,000 vehicles a year.

The Iranians have high hopes for these cars – especially the GPS- and AC-equipped Soren. So much so that the industry has a goal to export more than 250,000 cars a year by 2011, having only exported 6,000 last year and 1,100 during the entire 10 years between 1993 and 2003.

But it still may be a while before you see the Soren in a Tesco car park, even though Khodro claims that it meets European ECE94 safety standards. North Africa, the former Soviet republics and China are more realistic targets for exports. Iranian cars are also flooding into Iraq and Afghanistan. (Of course, these aren't the most competitive markets.)

Khodro says it is also planning to produce 25,000 Sorens in its new Chinese factory alone, and there are also new factories in Syria, Belarus and Venezuela, which will churn out the Soren. These countries are all political allies of Iran.

This export drive is also helped by the decision of Renault to allow the export of the Tondar 90, after a face-off with the Iranian government, which had suspended the Tondar project over this issue. Iran doesn't leave much to the free market, with the 1993 Automotive Law protecting an industry that had almost gone bankrupt after the Iran-Iraq war. In some cases, there are import tariffs as high as 400 per cent.

The ambitions of Iran's car industry now seem to match the ambitions of the Iranian government – to increase its bearing on the region and the world.

The nation's export potential, though, has been damaged by Iran not being a member of the World Trade Organisation. Iran has a population of 65 million: 50 million is the minimum level estimated by analysts to sustain an indigenous industry. The nation also has a low car ownership ratio of one in 10 and a highly educated workforce. The population is car mad.

The joint ventures with Peugeot, Citroë*, Renault and VW have provided the Iranians with the technology vital for their aims. "Renault has even prioritised production in Iran over China as it was a late player in China, and with the absence of the Americans, due to the sanctions, the Iranian market is uncluttered", Professor Donnelly says. "But how much technology would you transfer to the Iranians if you were a European producer, knowing their ambition?"Then again, the Peugeot 405 isn't exactly cutting-edge technology.

Dave Leggett, the editor of the motor industry news and analysis website www. just-auto.com, has recently returned from a trip to Iran. He believes that "the Iranians are in it for the long hall with their big ambitions for the Soren, even if the Tondar 90 may be their best bet owing to its price, quality and technology."

Unlike the UK, the Iranian government has decided to have an indigenous car manufacturing industry, rather than a car manufacturing industry in Iran.

"So when I went round the Iranian factories their R&D was impressive – designing and engineering prototypes despite the sanctions," Leggett says. "In fact the sanctions have encouraged them to be self sufficient, just like the industry in apartheid-era South Africa." And like apartheid-era South Africa, there is no shortage of those who will help the Iranians evade the sanctions.

Grand ambition, though, is no sign of impending success. "The Iranians' best bet right now is their domestic market", Leggett says.