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Iranian car lines keep rolling despite sanctions

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

Khodro's main brand, the Samand, is a sedan based on the Peugeot 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 model under agreements with the French manufacturers, despite Paris's support for tighter U.N. and EU sanctions.

Several other foreign companies are present in Iran, most noticeably South Korea's KIA Motors 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 industry.

CLOSED MARKET

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 Automotive.

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 Iranian."

(editing by David Stamp)

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