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Iranian car lines keep rolling despite sanctions

Jun 29, 2011, 6:28 a.m.

By Robin Pomeroy and Sanam Shantyaei

KARAJ, Iran (Reuters) - 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 international sanctions.

"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 foreign-designed basics.

"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.

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