Largest Iranian automaker taps the soaring Chinese market further

Seyed Kazem Hojjat
General Manager
Iran Khodro China

Gasgoo.com: It's rumored that the tie-up between Iran Khodro Industrial Group (IKCO) and Jinhua Youngman Auto may be on the verge of breaking down, while the cooperation with Chery Auto could be deepened. Is it true? Tell us more details on the two partners.

S. K. Hojjat : The cooperation between Iran Khodro and Jinhua Youngman is still going well, not ended, not suspended. Iran Khodro signed a joint venture agreement with Jinhua Youngman, and the JV was established in April 2006, in which Iran Khodro controls 30 percent and the left stake goes to Youngman. The registered capital was $60 million. At first we planed to produced Iran Khodro's own-branded car-Samand in the TaiAn factory in Shandong province (the construction work is now almost finished and manufacturing facilities and equipments are going to be established.)

In October 2007, both presidents from Iran Khodro and Youngman had a meeting in TaiAn city. They later decided to change the target: rather than to produce the Samand, the JV will produce a new model--X12. The X12 is not the final name of the new car; later we'll find a good name for the car to launch onto both the Iranian market and Chinese market. It's designed and developed by Iran Khodro.

For this project, we aimed a 70 percent localization-to source 70 percent of the components from the Chinese suppliers, though it could stand at 40 percent at the first stage. We're now trying to look for OEM suppliers in China; for those parts that we can't find qualified suppliers, then we must import the parts from Iran.

Gasgoo.com: When will the X12 go to the market?

S. K. Hojjat : It's scheduled to be marketed in early 2009. We're trying our best to put the car into production.

I've found that the manufacturing cost in China is lower than in Iran, but the main problem is quality. As you know, the Chinese suppliers' quality level is sometimes lower than in Iran where the standards are similar to European standards. It could be a problem to find Chinese suppliers that can produce components for X12 based on the Iran Khodro's standards. It is about three months that we are looking to find suppliers, especially for interior parts in the car, and fortunately we found some potential suppliers.

In the future as localization goes on to keep competitive price of the car, we will probably export some of the parts to Iran.

Gasgoo.com: What kind of car the X12 could be?

S. K. Hojjat : The sedan would be priced lower than RMB 100,000 for the basic model and a little higher than RMB 100,000 for new models with options, and it could be used as a family car. The exact price will be declared later as the designing process is still carrying on, the supplying contract is still unfinished and we have to calculate the total cost.

Gasgoo.com: IKCO showcased its Samand Soren at the 2007 Shanghai Auto Show. But it didn't receive much praise from the media. I wonder whether it's because that the car is not to the Chinese consumers' taste so you drop the production plan.

S. K. Hojjat : We did a market survey for the car SAMAND LX in 2005 and the result showed the Chinese consumers did accept the car, but later as the joint venture company has to be more feasible so we decided to put another car into production.

Exporting plan of Samand to China has not been canceled yet. As Iran Khodro engineers add new models to the Samand Soren, we may export or produce the car in China with another partner in the future. Also at the moment we're still talking with Chinese importers and dealers to sell the car in some inland provinces like Sichuan and Xinjiang.

Gasgoo.com: Iran Khodro also has cooperation with another Chinese automaker-Chery Automobile Co. Could you give a brief introduction on that?

S. K. Hojjat : Iran Khodro and Chery Auto have signed two contracts. According to the contract signed three years ago, 60,000 units of Chery cars-A15, a passenger car model-are to be exported to Iran as complete knocked-down (CKD) kits. We finally move the project to the Mashhad plant and the production will start very soon.

Another contract is a three way tie-up. Iran Khodro (49 percent shares), Chery Auto (30 percent shares) and a private company (21 percent shares) agreed to form a joint venture to produce the S21-a low-price car model from Chery in the form of CKD kits. The capacity of the production line is more than 100,000 units per year. Now we're still looking for the proper location for the new plant and solving the technical problems. Also there's possibility to export these Chery cars to the neighboring countries.

Gasgoo.com: As the biggest automotive manufacturer throughout the Middle East and North Africa, Iran Khodro has just showcased its first self-developed engine at the 2008 Engine Expo at Stuttgart this month. What are the benefits for those Chinese partners with Iran Khodro and what's your development plan in China in the coming years?

S. K. Hojjat : First of all, it's good for the Chinese companies (such as Youngman) to work with Iran Khodro. If they reach the Iranian standards then it'll be easier for them to export cars to the Middle East markets. It's win-win. You know we have some plans to introduce Chinese cars as CBU (completely build-up unit) to the Iranian market; of course they should at least meet the Euro III standard. The Iranian auto market is a large market, with around 1 million units being produced every year. The government has issued new policies on replacement of the decrepit vehicles with new cars, so the demand for new cars is a good chance for the Iranian automakers and also the foreigners, especially for Chinese manufacturers. What's more, Iran can be a good exporting hub of cars into the market of the Middle East.

IKCO Diesel, the commercial vehicle arm of the group has already signed a contract with China National Heavy Truck Company (CNHTC), importing HOWO trucks from China. The two sides are set to renew their contract, but so far Iran Khodro has no plan to start commercial vehicle production in China.

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