FDI in Iran's auto industry picks up speed (page 1 of 3)

It's a case of deja vu all over again. The Americans and Europeans and the French, in particular - are taking opposite sides in a standoff over a hostile state in the Gulf region, which one side claims to be part of the axis of evil and the other sees as a lucrative trade partner.

This time, however, the country in question is Iran rather than Iraq, and, at least for now, the Europeans appear to be winning the diplomatic battle. In the meantime, European firms - and especially auto manufacturers - are moving fast to sign major deals with local Iranian companies.

Growth potential

According to French automaker Peugeot, Iran has one car for every 21 inhabitants. Turkey has one for every 12. Western European countries and Japan have nearly one car for every two people. That indicates tremendous market growth potential, and in part explains substantial foreign car manufacturer interest in the Iranian market.

Iran's domestic vehicle production is growing quickly. In the first quarter of the Iranian year starting March 20th, Iran produced 187,135 light and heavy vehicles, including 165,000 automobiles; 52,500 Pride models were manufactured, followed by 31,100 Paykan cars and 19,500 Peugeot 405 injection models.

In July, Iran resumed the importation of foreign cars following a 10-year break. The import arrangement includes 130 percent customs fees, and a 10,000-car total to year-end. The customs fees are intended to support the domestic car industry, as well as facilitate the import
of cars to meet the chronic shortage of new vehicles.This fits with the stated interests of Iranian manufacturers.

Iran Khodro Industrial Group (Iran Khodro) managing director Manouchehr Manteqi said the company is not against car importations, but that it should be done through appropriate channels, also urging support for the domestic car manufacturing industry. According to one source, import orders have been placed by the representative of the large foreign car manufacturing companies in Iran.

The import fees will generate some 6 trillion rials ($760 million) for the government in the current Iranian fiscal year.Joint ventures. Over the last few years several major automobile manufacturing companies from have traveled to Iran to explore opportunities there.

In May, French company Renault-Nissan formed a joint-venture car manufacturing company called Renault-Pars to produce light passenger vehicles in Iran. Fifty-one percent of the company's shares are owned by Renault-Nissan, and the remaining 49 percent by the Automotive Industry Development Company, a concern owned by the Iran's two main government-controlled carmakers, the Saipa Group and Iran Khodro.

In 2006, Renault-Pars will produce the Logan under Renault license, a vehicle based on Type B of the L90 series of Renault automobiles. Currently manufactured in Romania, there are also plans to produce the Logan in Russia, Morocco, Colombia and possibly China.

The Iranian Logan will feature a 16-valve 1.6-liter engine producing 107 horsepower. According to Andreas Gabriel, managing director of Renault-Pars, the Logan will be sold in the Iranian market for 65-80 million rials.

Chairman of Iran's Industrial Development and Renovation Organization, Reza Veiseh, said at the launch of the Renault-Pars company that it constitutes a turning point in the Iranian automobile industry. Veiseh said: Half the L90 production volume will be targeted for exports
to 26 countries.

Chairman of the Renault-Nissan Group, Louis Schweitzer, said the company has a startup production capacity of 150,000 units per year with an initial capital of 300 million euros.