Structure

Iran Khodro is a Tehran-headquartered automaker. The public joint-stock company manufactures cars, trucks and spare parts for the domestic market and for export to the developing world. It has a market value of IR10bn ($1bn). The government plans to sell its 40 per cent stake in the company in mid-2010.

Until 2009, Iran Khodro claimed to be the largest automaker in the Middle East until 2009, producing 11 vehicle marques. However, data from Iran’s Industrial Development and Renovation Organisation (IDRO) shows local rival Saipa has now overtaken Iran Khodro to hold a 54 per cent share of the domestic market, leaving Iran Khodro with 46 per cent.

Like most global carmakers, Iran Khodro has over the years increased its outsourcing, and now farms out production of components and services to more than 100 smaller suppliers. The company and its suppliers are estimated to employ between a fifth and a quarter of Iran’s 150,000 automotive workers.

Operations

Iran Khodro produced 680,000 units in the financial year to March 2010, following an annual growth of 13.3 per cent. The company has long dominated Iran’s domestic vehicle market, manufacturing a portfolio of vehicles for clients such as Germany’s Mercedes-Benz, and France’s PSA Peugeot-Citroen.

The company was founded in 1962 as the Iran National Industrial Development Corporation, with a registered capital of IR100m by members of the Khayami family, who owned a car wash and garage in Mashhad city. The business took off after the Khayami brothers, Ahmad and Mahmoud, secured the dealership for Mercedes-Benz in Iran. As the Shah’s White Revolution pushed the country to modernise, the Khayami brothers won a licence to manufacture the Paykan – ‘Arrow’ – saloon, a Middle East version of Britain’s Hillman Hunter.

The cars were built in Tehran from Rootes Group kits. Rootes initially licensed Iran National to produce 6,000 Paykan cars and pick-ups a year. When Peugeot took over Rootes in 1978, it halted production of the prototype in Coventry in the UK. From 1985, Iran continued to produce Paykan cars using imported Peugeot 504 engines and suspension systems.

By the mid-1970s, the Khayami brothers were leading Iran’s industrialisation push. Their business empire included Iran National car plants, the retail chain Kourosh Department Stores, and the Bank of Iranian Industries. They decided to split the business; Mahmoud taking the automotive unit and Ahmad taking the retail and banking firms.

During the Islamic revolution of 1979 that toppled the Shah, Iran National workers came late to the wave of strikes and protests that swept the country. The Khayami brothers fled the new republic and split their time between France, the US and the UK. Iran National was nationalised and renamed Iran Khodro.

In 1991, government-owned Iran Khodro set up a plant to manufacture Paykan parts. By 1992, the plant was producing about 120,000 parts a year, meeting some 98 per cent of the Paykan’s requirements. Three years later, the firm set up a research unit to transfer the car’s design and engineering technology to Iran. This lead to the creation of the new Paykan, Iran’s first home-grown car, now branded the Samand.

Notoriously gas-guzzling, the Samand achieves barely 12 miles to the gallon. Despite this, its low cost and robust build has made it the car of choice for 40 per cent of Iranians – from taxi-owners to President Mahmoud Ahmedinejad – creating a two-year waiting list for new cars. In 2005, the government gave Iran Khodro a cash incentive to halt production of the old Paykan. By the time the last car rolled off the assembly lines in May 2005, Iran Khodro had produced 2.3 million Paykans.

Iranian carmakers were in the past protected from international competition by hefty customs duties on imported cars of up to 200 per cent. But in 2006, the government cut import tariffs to 90 per cent for cars and 20 per cent for heavy vehicles. In a further move intended to open up the industry, in 1989, then president Akbar Hashemi Rafsanjani launched reforms to encourage joint ventures with foreign partners.

Iran Khodro became the first Iranian carmaker to enter a joint venture with a foreign partner by tying up with Peugeot in 1990. Today, its portfolio of brands includes locally built Peugeots 405 and 206, and the Renault Logan. Production increased nearly five-fold between 1997-2006, rising to 550,000 units from about 100,000 vehicles.

In 2008, Iran Khodro opened two new factories. It invested $142m in Iran’s largest car assembly plant at Khorassan, with an annual capacity for 100,000 cars, including 5,000 Suzuki Grand Vitaras. A second plant opened in Abhar has the capacity to build 200 rail, metro and other wagons a year.

Ambitions

Presenting Iran Khodro’s 2009-10 results in March, chief executive officer Javad Najmeddin announced a production target of 780,000 units for 2010-11. To achieve this, the company will need to roll out 3,000 units a day, raising production of the Peugeot 206 to 1,000 units and increasing annual Samand production by nearly a third.

Iran Khodro hopes to produce 125,000 car engines this year, having developed a fuel-efficient engine for Samand and Peugeot Pars. It plans to continue investment in engine research and recently set up a joint venture with Stuttgart headquartered-Daimler to export Iranian-built 900-class Mercedes-Benz engines to Germany. However, in April, Daimler announced it was cutting ties with Iran Khodro, as Germany joined the Washington-led drive to halt Tehran’s nuclear programme.

Iran Khodro plans to win back lost market share in Iran this year with the launch of a new Samand model, built to European standards, and by improving its after-sales service.

Iran Khodro sees itself as a pioneer for car production in the Middle East and is keen to export technical and design expertise within the region.