Peugeot steps on the gas

By Simeon Kerre Countries writer

Peugeot has unveiled its 206 model to enthusiastic Iranians. While production is not set to start until February, the first 100,000 customers have already reserved their cars. Iran's automotive industry is clearly incapable of meeting demand and so the government is keen to attract foreign partners. The adverts have dubbed it "the drive of your life". For impatient Iranians, though, the wait for a brand new Peugeot 206 may seem to take a lifetime. Demand for new vehicles, estimated at 500,000 per annum, is double supply. Drivers often have to wait for up to two years before they can inch their car onto the crowded, polluted streets of Tehran. The waiting list for the 206 has had to be closed after 100,000 people rushed to sign up for the new model. Those unable to afford the $9000 price tag (including a $5000 deposit) may covet the 206 as their aging vehicles sputter along. They can, however, take comfort from the fact that the Iranian consumer is set to benefit from a broader range of better quality vehicles over the next couple of years.

The automotive industry is one of Iran's most promising industries. It grew over 27% - eight times the national average - between 1994-1999, according to Atieh Bahar, a Tehran-based consultancy. It is highly protected, though. Only in highly exceptional circumstances can Iranians import cars from abroad. In 1998, for example, each member of the Iranian national team - as a reward for beating Iran's old enemy, the US, in the World Cup - was allowed to bring home a car. Years of import substitution, sanctions and international isolation have fostered a sense of self-sufficiency in the industry. But locally produced cars have a reputation for poor quality and have contributed to the dangerously high pollution levels afflicting Tehran.

The ubiquitous Paykan, for example, is based on a 1960s model, the British-made Hillman Hunter. Modifications have been so minimal that, aping the right-hand drive Hillman, the Paykan still has the hand brake and windscreen wipers on the wrong side. True, the cars are sturdy and easily repaired. But Iranians are tired of waiting over a year for a car based on 40-year old technology. "Local industry is under growing pressure to improve standards," says Siamak Namazi of Atieh Bahar. The government, which wants to raise unit production from 250,000 in 2000 to 750,000 per year in 2005, is looking for assistance from foreign partners. It may even sanction the import of 30,000 foreign-made units in 2001, hoping to stimulate competition and raise local industry's game.

Peugeot, in partnership with Iran's largest auto manufacturer Iran Khodro, is one of a range of foreign manufacturers getting involved in the country's car and commercial vehicles sectors. As well as the Paykan and Peugeot 206, Iran Khodro produces several other Peugeot models. Other foreign participants - who make trucks, buses and pick-ups, as well as cars - include a large Asian contingent, such as Kia, Mitsubishi, Daewoo, Subaru, Toyota and Hyundai, and Europeans, such as Renault and Mercedes. Joint ventures provide the Iranian partner with technology while giving the foreign firm access to a hungry market.
The private sector's involvement is growing. The government has allowed small slices of state-owned car manufacturers to be floated on the Tehran Stock Exchange. And Kish Khodro, based in the free trade zone on Kish Island, is a joint venture between private investors, a state development bank and UK-based BMA Management, which designed the company's first offering, a modern sports utility vehicle (SUV) called the Sinad. Mountainous terrain and bad winter conditions, combined with Tehran's terrible congestion and daring driving style, make the SUV an object of envy. The country's other 4x4, the Nissan Patrol (produced by Saipa, Iran's second largest car company) has proved to be very popular. Kish Khodro hopes that its model will capture some of that market. It has export orders for 500 vehicles and hopes to expand its horizons beyond Iran's traditional - if unsophisticated - export market, Central Asia.

But exports, while welcomed, are not the main attraction. "Officials are aware that every job created in auto-assembly, creates a further four in related services and spare parts industries," says Namazi. "Growth in spare parts manufacture has been incredible during the last four years, and may prove attractive to foreign companies because of high levels of local expertise and lower capital investment costs." With the government aiming to create 800,000 jobs every year, it is understandable why so much attention is being paid to the automotive industry. Newer cars, too, should help Tehran's dire air quality, which can get so bad that schools have to be closed on safety grounds. Sentimental attachments aside, the sooner the Paykan is retired the better.

© 2003 All Rights Reserved. Atieh Bahar Consulting.