Is Iran's automobile industry collapsing?

Mashad, Iran by Shutterstock.com

Article Highlights

  • Sales of shares to other government entities under the guise of privatization is usually a sign of transfer of ownership to IRGC

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  • In 9 months, production has fallen from 1.2 million vehicles to fewer than 700,000 in Iran

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  • Plans to export a million cars by 2025 now appear fanciful

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The Islamic Republic has long considered its domestic automobile industry to be a symbol of Iran’s industrial might and world standing. “A country’s car companies can define its industrial might, and put it on the map,” Iran’s English language television station Press TV explained.

While bragging about being 13th ranked in the world may, at first glance, seem akin to bragging about being valedictorian of a summer school class, Iran’s success in the automotive sector has been formidable. Its ranking places its automobile sector above that of the United Kingdom (14), Turkey (17), and Italy (21). Not only Iranian streets, but also those of Baghdad and Beirut are clogged with Khodros, Paykans, Saipas, and other Iranian vehicles.

Atieh Bahar, a consulting firm close to billionaire cleric and former president Ali Akbar Hashemi Rafsanjani, charted the growth of the Iranian automobile industry in a 2008 report, tracing the quadrupling of passenger car production from a quarter million in 2000 to nearly a million by 2008.

The financial crisis hit the Iranian car industry hard, however. A liquidity crisis forced the government to bail out Iran’s largest vehicle manufacturer, Iran Khodro (sometimes referred to as Pars Khodro), to the tune of $1 billion. While the Iranian government subsequently announced the privatization of Iran Khodro and its second largest automotive company Saipa, an Iranian parliamentarian exposed their privatization as a fraud. Indeed, the sale of shares to other government entities under the guise of privatization is usually a sign of transfer of ownership to the Islamic Revolutionary Guard Corps’ economic wing.

Automobile plants not only are a lucrative business for the Revolutionary Guards, but also have additional strategic benefits. In recent years Iranian automobile manufacturers have announced the establishment of automotive plants in Iraq, Syria, and Venezuela. In theory, this might enable penetration of these countries by Guardsmen serving under the cover of assembly line workers and supervisors. Iran Khodro web servers have been used to attack Green Movement websites in Iran. Moreover, a Revolutionary Guard newspaper has raised questions about the political loyalty of some Iran Khodro employees, perhaps setting the stage for laying off those without political connections in order to provide patronage to retired Guardsmen and their families.

The Iranian government and, especially, the Islamic Revolutionary Guard Corps have been largely defiant in the face of sanctions, even if they increasingly acknowledge the pain which some Iranians may feel. While executives at Iran Khodro have claimed that their ability to produce parts domestically has immunized the industry from international sanctions, reality may increasingly bite. In March 2012 Iran Khodro announced plans for a 13-percent production increase, but, as the italicized article belwo suggests, Iranian officials are now facing the possibility that production will decline by half. Indeed, over the last nine months, production has fallen from 1.2 million vehicles to fewer than 700,000, a level akin to that of a decade ago. The domestic Iranian press also suggests that the Iranian government may have manipulated production figures to suggest the decline was less severe than in reality. Compounding the difficulty has been the decision by the French company Peugeot to suspend the shipment of parts to Iran in order to comply with international and European Union sanctions. Plans to export a million cars by 2025 now appear fanciful.

 

According to the Iranian Students’ News Agency, our country leaped dramatically in 2011, with the production of 1,648,505 units and growth of 3.1 percent over 2010, making Iran the 13th largest automaker in the world. However, vehicle production has declined in 2012 after its dramatic rise in 2011…. In the worst case, there could be a 50 percent drop in January 2013 compared to the same period in the previous year….

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