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China seeks global gains in Iran's auto
industry
By Hooman Peimani
China's SAIC Chery Automobile Co announced late
in February that it would start making cars in Iran.
Apart from indicating friendly ties between Beijing and
Tehran based on their common views on various regional
and international issues, the announcement demonstrates
that China is taking steps to turn its small domestic
auto industry into a global player, a move in tune with
its status as a rising economic power.
The first
Chinese automaker to move abroad for producing cars, two
major economic factors have convinced Chery to expand to
Iran. The tough competition in the Chinese auto market
caused by the growing operation in China of major
foreign manufacturers has been a major factor. Giant
American and Japanese corporations such as General
Motors, Ford, Toyota and Mazda have made heavy
investment in that country to become the dominant
suppliers. General Motors has invested US$1.6 billion,
for example. To increase their sales, those corporations
now produce less expensive cars than those of Chinese
auto makers, while reducing their more expensive models'
prices to make their products also affordable for
Chinese middle-income buyers.
Another factor has
been a decrease in China's growth rate of car sales.
That rate has reportedly slowed from 50 percent in 2002
to 20 percent in the current year. The lower than
expected growth of demand will certainly damage the
expansion of small manufacturers such as Chery, which
are still in the process of consolidation. Its current
weakness was reflected in its small share of China's car
market in 2002 when it sold 50,000 cars, equal to 4.4
percent of that year's total sale of about 1.13 million.
Thus, fear of the mentioned factors'
consequences has motivated Chery to seek salvation
abroad. Such fear was reflected in the statement of a
Chery spokesman, Li Huiyou, made following his company's
February announcement, "We are feeling a sense of crisis
about China's car market." Apart from that economic
compulsion, branching out to Iran is a good move as it
is also justifiable for a new producer in search of
markets to ensure its future growth.
Chery will
join an Iranian company (SKT) to build a factory in an
unspecified location in the northeastern part of Iran
with an annual capacity of 30,000 cars to be sold under
the Chery brand, according to Li. This joint venture
will generate for it an undisclosed fee as the provider
of "technology and components" to its Iranian partner.
Given the friendly and expanding Chinese-Iranian
relations encompassing the political, economic and
military sectors, Iran's lucrative and growing car
market is now open to Chery. A few domestic and foreign
carmakers currently dominate this market.
Iran
began its auto industry in the late 1950s by assembling
a few models of American cars under license. Ford and GM
increased their operation in that country in the 1960s
and the 1970s. In the mid-1960s, Iran National, Iran's
first Iranian-owned automaker, began the production of a
British car (Hillman Hunter) under a Persian name,
Paykan (Arrow). In the 1970s, French automakers (Citroen
and Renault) set up plants in Iran to produce passenger
cars through joint ventures with Iranian industrialists,
while German (Mercedes) and Japanese (Mazda) automakers
produced trucks, buses and pickups.
The 1979
Iranian revolution suddenly damaged Iranian-American
relations and made the American carmakers withdraw from
Iran. It also damaged Iran's relations with the western
European countries, which lasted to varying extents
until the late 1990s. The created political and economic
vacuum opened the way for South Korean companies, mainly
Daewoo and Kia, to penetrate the Iranian market.
Beginning in the late 1980s, the gradual improvement of
Iranian-European relations helped French companies
increase their production in Iran. Although Japanese
companies such as Mazda and Nissan also operate there,
French (Renault and Peugeot Citroen SA) and the
mentioned South Korean companies have become the largest
car producers in Iran through joint ventures with
certain Iranian automakers.
Iran has the largest
auto industry in the Middle East. Being mainly in
private hands before 1979, it is now almost completely
run as a publicly-owned industry. Its heavyweights are
either government-run enterprises or controlled by
Iran's gigantic foundations run by the Iranian elite.
According to the available statistics, Iran's
auto sector employed over 230,000 people in 2000. The
industry, which has since grown significantly, produces
a variety of vehicles, including passenger cars, buses,
mini-buses, vans, pickups and trucks as well as auto
parts exported to Asian and European countries,
including Germany.
Of its major manufacturers,
10 merged in the late 1990s to form three large
companies: Iran Khodro, Pars Khodro and Saipa. The first
one is its largest passenger car producer, which plans
to manufacture 1 million passenger cars annually at the
end of its 10-year expansion program. In the current
Iranian year ending March 20, its car production will
reach 300,000 units to be increased to 450,000 next
year, as stated by its managing director, Manouchehr
Manteqi.
Apart from Paykan whose production will
cease in the next Iranian year, Saipa, Iran Khodro and
Pars Khodro make various vehicles based on South Korean,
French, Japanese and German models with a varying
percentage of Iranian parts. In 2002, Peugeot, for
example, produced 156,000 cars in Iran, a reported 45
percent increase from the previous year. Iran's limited
economic liberalization of the last few years has helped
the emergence of small private car manufacturers
producing Iranian-designed cars notably Anna and Samand.
Notwithstanding its handicaps, including low
production compared to the growing demand, low
investment in research and development and
mismanagement, the Iranian auto industry has recently
experienced an impressive expansion. It increased its
passenger car production from about 260,000 in 1998 to
about 500,000 in 2003. As stated last week by Iran
Khodro's director for planning affairs, Hojjat Moeini,
Iran's current production of various motor vehicles is
900,000 units, which, according to him, ranks it the
11th among the world's automobile manufacturers.
China is far from being a major player in the
international auto industry. However, the expansion to
Iran of a Chinese manufacturer such as Chery will surely
help it put itself on the right track towards that end.
In the absence of a strong Iranian private sector,
Iran's undersatisfied and government-controlled auto
market will offer a unique opportunity for growth to
Chery, a company of Iran's old friend, China.
Dr Hooman Peimani works as an
independent consultant with international organizations
in Geneva and does research in international
relations.
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