* Despite sanctions, Iran carmaker sees 2-figure growth
* Says international pressure has made it stronger
* Enjoys protected home market, analyst says exports limited
By Robin Pomeroy and Sanam Shantyaei
KARAJ, Iran, June 29 In the Iranian summer heat,
portable fans cool workers stacking parts in the Middle East's
biggest car factory.
But the heavy lifting is unaffected by the soaring
temperatures as robots -- from South Korea, Germany and Japan,
-- stamp sheets of steel into body panels, shaking the floors at
a busy plant which shows no signs of being crippled by
"I think the sanctions make us stronger," said Amirshahab
Yarian, one of the 25,000 workers at Iran Khodro's main plant
just outside Tehran, as sparks flew into the air from robot
welders on one production line producing 30 car bodies per hour.
Unusually for the Middle East, Iran has developed its
domestic car industry for five decades and produced 1.6 million
vehicles last year, about half of them made by Iran Khodro which
aims to export around 10 percent of its production this year.
Even with sanctions, which have scared off some suppliers
from exporting to Iran, and a limp economy, Iran Khodro says
sales rose 18 percent in 2010 and plans a 13 percent output
increase this year to 860,000 vehicles.
"Iran Khodro isn't under sanctions," said Abdollah Babaei,
Khodro's international relations director. "It's the foreign
companies that used to work with us that are under sanctions."
It is a familiar refrain in Iran which insists that
sanctions -- aimed at pressuring Tehran to curb its nuclear work
-- have not only failed to hurt the economy but have actually
made it more robust by forcing manufacturers to rely more on
domestic production rather than imports.
"Our strategy to overcome sanctions was to reduce dependence
on foreign vehicle parts," Babaei told Reuters in his office
from whose window the still snow-capped Alborz mountains provide
a backdrop to the industrial production just outside. "More than
90 percent of our parts are domestically produced."
SANCTIONS AND INVESTMENTS
"Over the past 10 years we have managed to reach a stage
where we produce our own parts," he said. In 2000 Khodro was
making its own car bodies, by 2005 its own motors and by 2015 it
will have its own car platform, no longer relying on
"In the last five or six years, we have produced as many
cars as we did in the previous 40 years," he said.
Cars and most of their components are not directly affected
by the four rounds of United Nations sanctions which target
items related to nuclear and military technology or are
considered of possible "dual use".
Tighter sanctions imposed by the United States, the European
Union and some other countries have hit foreign investment in
Iran's oil and gas sectors and hampered access to international
financial services but appear to have inflicted no direct harm
on the car industry.
Only a few minor foreign component suppliers have stopped
doing business and it is their loss, Iran Khodro says.
The bigger overseas players have not fled Iran where French
and South Korean branded cars -- made in Iran -- are highly
visible in a market where foreign-made vehicles are kept out by
a 90 percent import tariff.
Khodro's main brand, the Samand, is a sedan based on the
Peugeot (PEUP.PA) 405 which retails, with ABS brakes and
airbags, for just under 150 million rials (around $14,000).
Khodro also produces Peugeot branded cars and a version of a
Renault (RENA.PA) model under agreements with the French
manufacturers, despite Paris's support for tighter U.N. and EU
Several other foreign companies are present in Iran, most
noticeably South Korea's KIA Motors (000270.KS) whose Pride
model, built by the other big Iranian producer Saipa, is one of
the most popular in Iran.
Like the EU, U.S. ally South Korea followed Washington's
lead and last year blacklisted 102 companies and banned
investment and construction contracts to develop Iran's oil
The smart family cars rolling off Iran Khodro's production
lines are a far cry from the rickety model it produced for years
-- the famously polluting Paykan, based on Britain's Hillman
Hunter, a design from the 1960s which the company was still
making until eight years ago and which still makes up a
significant proportion of the cars choking Tehran's streets.
"It was an easy car to repair. Everyone was his own or her
own mechanic," said Yarian, with a hint of nostalgia.
Unlike the boxy Paykan, Iran Khodro says its current models
meet Western pollution and safety standards and are prized by
consumers in 30 markets in the Middle East, Africa and the
former Soviet republics where it exports.
It also has five factories abroad, in Azerbaijan, Belarus,
Senegal, Syria and Venezuela.
But while foreign analysts are impressed by Iran's ability
to keep producing cars in the face of sanctions, they say its
scope to increase exports or more foreign expansion is limited.
"They keep producing cars, and that is surprising," said
analyst Pierluigi Bellini, Middle East and Africa manager at IHS
Iran's Khodro and Saipa share the Iranian market of 78
million people with respective market shares of 49 and 48
percent, Babaei said. Import tariffs make most foreign
automobiles the reserve of the wealthiest Iranians.
As part of a general privatisation drive, Iran Khodro is now
only 20 percent owned by the state, although shareholdings by
government-related institutional investors such as pension and
social security funds mean the stake is actually much higher.
"The Iranian government ... is quite keen on developing the
auto industry and when you have a country behind you, you can
direct resources to those industries," Bellini said.
Financial sanctions and Tehran's policy to maintain a strong
currency both impede exports, analysts say, but Bellini said it
was the cars themselves that still had a long way to go to
appeal to most foreign markets.
"The level of technology of Iranian made cars in not enough
for Europe, America or Japan, or even for China which are used
to cars which are the best in the world," he said. "They cannot
compete in that way.
"What they can do is have some share in countries where
there is a low purchasing power and compete with used cars."
Iran Khodro's sights are higher. A new sedan called Dena, to
be launched by August 2012, will offer higher specifications and
continue the drive for a purely Iranian car, Babaei said.
"Whereas we used to have foreign help, the Dena is purely
(editing by David Stamp)