Iran Autos Report Q1 2010 Including 5-Year Industry Forecasts by BMI

Q1 2010 www.businessmonitor.com

IRAN AUTOS Report INCLUDES 5-YEAR FORECASTS TO 2014

ISSN 1748-9962 Published by Business Monitor International Ltd. Iran Autos Report Q1 2010 Including 5-year industry forecasts by BMI

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Publication date: December 2009

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Iran Autos Report Q1 2010

CONTENTS

Executive Summary ...... 5

SWOT Analysis...... 7

Iran Autos Sector SWOT...... 7 Iran Political Swot...... 8 Iran Economic Swot...... 9 Iran Business Environment Swot ...... 10 Regional Overview ...... 11

Change Ahead For The GCC...... 11 Trouble In South Africa And Turkey, Uncertainty In Iran...... 14 Impact On Production ...... 15 Business Environment Ratings ...... 16

Table: Middle East And Africa Business Environment Ratings...... 18 Iran – Business Environment Ratings ...... 19 Limits Of Potential Returns...... 19 Risks To Realisation Of Potential Returns...... 20 Industry Forecast Scenario...... 21

Production And Sales...... 21 Table: Iran Autos Sector – Historical Data And Forecasts ...... 21 Trade ...... 23 Table: Iran Autos Sector – Historical Data And Forecasts ...... 23 Macroeconomic Forecast Scenario...... 25

Table: Iran – Economic Activity 2007-2014 ...... 28 Competitive Landscape ...... 29

Financial Issues...... 29 New Fuel Technologies...... 30 Quality Control...... 32 Trade Sanctions And The Iranian Car Industry ...... 33 Privatisation ...... 35 Industry Developments ...... 36 IKCO’s Foreign Production ...... 38 Table: Samand’s Overseas Reach...... 40 Commercial Vehicles...... 41 Table: Commercial Vehicle Production – Share Of Production By Segment And Manufacturer (%)...... 42 Suppliers...... 44 Regulation...... 44 Company Monitor...... 47

Regional Case Study: Nissan Motor ...... 47 Production ...... 47 Table: Nissan MEA Production Facilities ...... 49 Sales ...... 50 Table: Nissan MEA Distributors...... 50

Iran Autos Report Q1 2010

Company Profiles...... 52

Iran Khodro Company (IKCO)...... 52 Societe Annonyme Iranienne de Production Automobile (Saipa)...... 55 Pars Khodro ...... 57 IKCO Diesel ...... 58 Saipa Diesel...... 59 Zamyad ...... 60 Country Snapshot: Iran Demographic Data ...... 61

Section 1: Population...... 61 Demographic Indicators, 2005-2030 ...... 61 Rural/Urban Breakdown, 2005-2030...... 62 Section 2: Education and Healthcare ...... 62 Education, 2002-2005...... 62 Vital Statistics, 2005-2030...... 62 Section 3: Labour Market And Spending Power...... 63 Employment Indicators, 1996-2005 ...... 63 Consumer Expenditure, 2000-2012 (US$) ...... 64 Average Annual Manufacturing Wages, 2000-2012 ...... 64 BMI Methodology ...... 65

How We Generate Our Forecasting Model...... 65 Sources ...... 66

Iran Autos Report Q1 2010

Executive Summary

Iran Khodro Company (IKCO), which accounts for about 48% of the nation’s automotive output, produced 353,000 passenger cars in the seven-month period ended October 2009. According to IKCO’s vice president of production affairs, Javad Dehnadi, output of the Peugeot 405 was the highest, with 90,067 units made during the period. IKCO also makes various versions of the Samand model and other Peugeot models. The latest output figures show a 12% rise in production from the year-ago period, Dehnadi said.

BMI believes growth for all carmakers will depend heavily on exports and producing overseas. The rise of Saipa, whose sales increased by 18% year-on-year (y-o-y) to become the country's largest carmaker in the Iranian year ended March 31 2009, has been fuelled largely by its expansion into new export markets. Saipa and IKCO, the country’s two largest automakers, have been seeking export opportunities both for CBUs and CKD kits supplied to assembly lines.

IKCO has been making headway in terms of its foreign production. The company’s CEO said in October 2009 that an agreement had been signed between IKCO and Peugeot to manufacture the Peugeot 207i car at IKCO facilities outside Iran. Under the agreement, IKCO will be able to export the model to 63 countries. The agreement came on the heels of a similar agreement reached between the carmakers a month earlier. In September 2009, IKCO and Peugeot signed a deal which gave IKCO the right to produce the Peugeot 206, 207 and Pars models outside Iran.

The focus on foreign markets has been paying off. Exports have been rising, but from a low base, as shown by the latest figures from IKCO. According to IKCO’s deputy head for export and international affairs, the carmaker’s exports grew in the March-October 2009 period to more than 16,000 cars, as reported by the Islamic Republic News Agency (IRNA). By comparison, it exported 8,800 vehicles in the same period of 2008. According to the news agency, IKCO exported cars to 40 countries in the seven- month period and plans to safeguard markets and after-sales services in 40 countries.

On the commercial vehicle front, a US$1bn scrappage scheme should help revive demand for heavy vehicles in Iran. The government is aiming to replace 12,813 vehicles with new ones by the end of the current Iranian calendar year, which ends on March 21 2010. Some 8,813 trucks, 1,500 buses and 2,500

Iran Autos Report Q1 2010

minibuses will be replaced as government representatives for the expansion of the public transportation fleet and energy saving received the central bank's confirmation of a US$1bn credit plan. In addition, the oil ministry will also allocate about US$230mn for renewing the vehicle fleet in Iran from its internal budget.

Trade sanctions remain a threat to the industry. The US has been taking a tough approach to Iran, which has refused to halt its pursuit of a nuclear programme. In November 2009, President Barack Obama said he was talking with allies about fresh sanctions against the country, as reported by the Associated Press and Time.com. Obama did not disclose details about what potential new measures were being discussed, the report said, adding that the US leader appeared to hold out the option of diplomacy in a bid to get Iran to the negotiating table. Iran claims it is not using its nuclear work for weaponry purposes, but the standoff still represents a threat to the business environment.

Iran Autos Report Q1 2010

SWOT Analysis

Iran Autos Sector SWOT

Strengths The largest car-producing market in the Middle East Tie-ups with foreign carmakers have expanded and updated the range of models produced by Iranian autos firms

Weaknesses Heavily protected domestic market Iran is subject to US trade embargoes, which have cut the country off from investment by US-based manufacturers Local parts and components manufacturers face capacity constraints, which will mean greater reliance on foreign imports in car assembly IKCO is suffering financial difficulties and is being bailed out by the government

Opportunities A limited relaxation on car imports will lead to a rise in inbound shipments As Iran’s car sector grows, it will increasingly rely on outsourcing for parts and components US$1bn scrappage plan for commercial vehicles should boost heavy vehicle sales

Threats Iran could be subjected to an international trade embargo over its nuclear programme, affecting the importation of parts, the future of joint ventures with foreign firms and Iran’s export market in the Middle East Political instability is a key concern for the whole Iranian economy

Iran Autos Report Q1 2010

Iran Political Swot

Strengths Since the overthrow of the Pahlavi family in 1979 there has been some reduction in the level of political corruption, and wealth distribution has improved marginally The Revolutionary Guard and Basij militia are fiercely loyal to the Supreme Leader, helping to maintain social stability

Weaknesses The country has one of the poorest human rights records in the region, and the authorities do not hesitate to quell dissidents. A number of journalists are being held in custody While, ultimately, decision-making rests with the Supreme Leader, the regime is heavily fragmented and consensus is hard to reach Widespread perceptions of electoral fraud during the course of June's presidential elections has damaged the regime's legitimacy in the eyes of many Iranians

Opportunities The majlis (parliament) is more than just a rubber stamp. The move by 150 parliamentarians (out of 290) to hold the president accountable for his handling of the economy is a positive indication that checks exist

Threats Nuclear tensions raise the prospect of further US and UN Security Council sanctions and the, albeit very limited, possibility of a military strike by the US or Israel Ethnic tensions are on the rise High youth unemployment The rising influence of the Revolutionary Guards within the political and economic arena may present a challenge to the status quo over the long term

Iran Autos Report Q1 2010

Iran Economic Swot

Strengths Iran has the world's second largest proven oil reserves after Saudi Arabia, and the world's second largest proven gas reserves after Russia Oil and gas aside, the republic is rich in other resources and has a strong agricultural sector

Weaknesses Local consumption of hydrocarbons is rising rapidly and this, coupled with ageing technology in the oil and gas sector, will have a negative impact on its oil- and gas-exporting capacity After a concerted effort to reduce public debt in recent years, there are signs that it is once again rising

Opportunities The gas sector remains underdeveloped, and there is considerable room to maximise this source of revenue

Threats A decline in world oil prices will have a marked impact on the economy. Although an Oil Stabilisation Fund (OSF) exists to protect the economy at times of weaker oil prices, it has increasingly been used to fund government overspending and could be close to empty A further deterioration in Iran's relations with the international community over its nuclear programme could result in the imposition of more extensive economic measures by the UN Security Council or the US There is a serious risk of capital flight owing to fears of conflict or sanctions

Iran Autos Report Q1 2010

Iran Business Environment Swot

Strengths The Foreign Investment Promotion and Protection Act (FIPPA) does give some protection to foreign investors and now allows relatively good terms for the repatriation of profits Although stifled in the years since the Islamic revolution, Iranians have traditionally been renowned for their entrepreneurial skills, a factor that is potentially a strong pull for foreign investors

Weaknesses Progress on the privatisation front remains slow, despite some recent encouraging signs Foreign firms are currently unable to own Iran's hydrocarbon resources. The resultant 'buy back' deals offer less advantageous terms than those elsewhere, limiting hopes of new investment

Opportunities As part of the fourth Five-Year-Development Plan (FYDP) 2005-2009, the government will end tax and customs concessions currently afforded to the country's quasi-statal bonyads, or foundations The government has inaugurated the first phase of an oil swap project with Russia, Kazakhstan and Turkmenistan. The project will compete with the rival US-backed pipeline that will run to the Mediterranean from Baku in Azerbaijan, through Georgia, to Ceyhan in Turkey

Threats UN and EU sanctions on the Islamic Republic pose a significant threat to the participation of foreign firms in the oil and gas sector Central bank supervision of charitable funds will be stepped up sharply, after it emerged that a number of these funds had collapsed due to indiscriminate lending practices

Iran Autos Report Q1 2010

Regional Overview

Impact Of The Economic Crisis In Middle East And Africa The economic downturn is having a significant impact on the markets of the Middle East & Africa (MEA), which will have a long-lasting legacy on the market and the region’s carmakers. Oil-producing Arab states are likely to fare better, having saved revenue surpluses over the Automotive And Economic Trends year for when times are hard. Nevertheless, consumer confidence has 5% been badly hit and the outflow of 0% expatriate workers has shrunk the -5% -10% potential market. The credit crunch is Production -15% impacting particularly on car sales in Sales -20% South Africa and Turkey, both of which GDP -25% have already witnessed a period of Iran UAE

decline. As the two countries are export- Egypt Turkey Kuwait oriented car producers reliant on the Bahrain South Africa European and Asian markets, they are Arabia Saudi also expected to see output plunge. Yet Source: BMI trade protectionism in Iran and Egypt will not necessarily protect them from the downturn, as they will also feel the effects of the collapse in oil prices and the resulting loss of liquidity.

Change Ahead For The GCC

The GCC markets have not escaped the effects of the global downturn. The natural consequence has been that the automotive market has been somewhat trimmed after several years of robust growth. Several factors have made the impact of the global situation on the Gulf particularly deep, including plunging prices for the region’s primary export, oil; the crash of once-booming real estate markets – most notably in Dubai; and a sharp tightening of liquidity in a region in which the economy had been driven in part by rapid credit growth. Furthermore, falling oil revenues have weakened previously strong fiscal positions, leading to big-ticket projects to be put on hold in some cases. The downturn is being exacerbated by an outflow of expat workers and a collapse in consumer confidence, neither of which have been helped by the credit crunch.

Dealers had placed large orders amid positive forecasts in 2008, but were caught off-guard by the sudden and dramatic decline in sales. There had been a downward slide since the beginning of Q408 as lending began to tighten. GM said the rate of vehicle loan rejections in November had risen from 5% to up to 30% in the UAE. Stricter lending requirements have impacted greatly on UAE sales, as 70-80% of new car

Iran Autos Report Q1 2010

purchases in the country are made on credit. Even as conditions improve there is no guarantee that this will boost consumer confidence. At the same time, expat workers have left the Gulf region, particularly Dubai, in droves. As the credit crunch continues with no clear end in sight, BMI predicts that the UAE market will shrink by 8.6% this year. BMI predicts that over the long term, the UAE market will rebound strongly as consumer confidence is boosted. By Q109, thousands of vehicles were being piled up at ports, warehouses and showrooms amid a sudden drop in demand. One UAE-based Japanese brand importer reported that 40,000 unsold vehicles were being stored in Muscat, Oman. While the UAE, Kuwait and Bahrain are expected to show declines, growth in the Saudi economy coupled with liquidity injections and less dependence on sales to expatriates, should see it grow by over 2.0% this year.

In the UAE, discounts of up to AED36,000 were being offered on some four-wheel drives and AED5,000-23,000 on saloon models. The lower end of the market has seen the biggest drop in prices while the premium car segment has been less affected. The pressure is on dealers to clear their stocks as some face large payouts in port demurrage charges due to warehouses reaching capacity. Consumers may be delaying purchases to wait for prices to drop further, a situation known as ‘the paradox of thrift’ (or ‘the Paradox of Saving’). Dealers can only go so low, however, and when that limit is reached and price drops end, BMI expects demand to rise.

However, BMI believes that governments in the region will have enough cash to sustain liquidity and prop up consumer spending. In the second half of 2009, recovery in the global economy became apparent, and with oil prices apparently stable at around $70 per barrel – half the 2008 peak but well above the 2009 low of under US$40 – the Gulf has also seen economic activity pick up again. This is likely to have the effect of reinvigorating the regional automotive market to an extent, as the sector is closely linked to consumer confidence.

Nonetheless, a rapid return to burgeoning sales growth seems unlikely, for several reasons. Firstly, liquidity remains rather tight, despite unprecedented global monetary easing, as banks shore up their balance sheets in the wake of the crisis. In the Gulf, they are also likely to be under increasing scrutiny from authorities anxious to prevent another credit bubble from forming. Sluggish global growth in 2010 is also likely to prevent oil prices from soaring again, so the Gulf countries will likely face a year of economic normalisation. Meanwhile, despite a clear appetite for new models, automobile sales are unlikely to continue rising at the rate they have in recent years, as the market nears equilibrium.

Overall, the GCC market is a strong one for vehicle sales, and has been less hard hit than others in the Middle East and beyond. An affluent, rapidly growing population and a sophisticated consumer profile are all strengths.

Over the medium term, demography, the high cost of living and the economic and financial downturn are set to change the very nature of the car market, with the UAE as the region’s trendsetter. BMI expects a

Iran Autos Report Q1 2010

shift towards the 16-31 age group, which Ford Motor estimates will make up a 28% market share in the region by 2010. The compact car is likely to be the fastest-growing segment, displacing the gas-guzzling sports utility vehicles (SUVs) which have driven growth in the past. An increase in smaller, fuel-efficient car sales will be the Arab states’ response to the economic downturn. This trend could entice Chinese and Malaysian firms to set up large-scale car assembly operations in the Gulf, taking advantage of economy- conscious consumers as well as the region’s position as a trade hub for the rest of the MEA. As yet, announced plans for new car plants have yet to come to fruition despite the GCC’s low import duties and a favourable investment environment compared with other states in the region (although the transient nature of the area’s workforce is a downside).

Car leasing could be one of the few sectors to benefit from the economic downturn. Dollar-Thrifty Automotive Group (DTG), one of the region’s largest car rental operations, has said it is seeing an increase in local car leasing across the Middle East & North Africa (MENA) and is planning to expand into Bahrain, Jordan and Saudi Arabia in 2009. Those that are unable to purchase new cars due to the credit crunch are increasingly turning to car rental. Faced with job insecurity, consumers, particularly expatriates, are also taking a more short-term view. According to DTG, rather than investing in a car, with its related maintenance and insurance costs, leasing continues to provide a flexible transport opportunity for people who are unclear about how long they will be in the region.

Iran Autos Report Q1 2010

Trouble In South Africa And Turkey, Uncertainty In Iran

The situation in the GCC looks rosy when compared to other markets in the MEA. In Turkey, domestic passenger and light commercial vehicle sales fell 38% y-o-y to 41,348 units in January-February as consumer demand plummeted. The Turkish automotive market is set for a third year of decline in 2009, with new vehicle sales forecast to drop by a further 9.4% to 526,000 units, the lowest level for five years. The commercial vehicle market will be markedly affected by a decline in fixed capital formation and a slowdown in haulage, with sales set to drop 10.7%. However, the year is likely to be the market’s nadir, with a recovery expected from 2010 when sales are set to rebound by 9.4% to reach near-2008 levels. By 2013, the country should see its highest annual sales volume, beating the previous record set in 2006 with sales of around 695,000 units.

In South Africa, vehicle sales fell 28.8% y-o-y in 9M09, as reported by Times Live. The market appeared to be showing signs of bottoming out in October 2009, when the slowest monthly decline in sales in a year was reported. Sales dropped to 31,622 after falling by an annual 22.4% in September, Bloomberg said, citing the Pretoria-based National Association of Automobile Manufacturers of South Africa (NAAMSA). Vehicle sales have fallen every month since April 2007, the agency reported. Ford’s sales were still 16.9% below October 2008 levels, but Jacques Brent, vice president of sales and marketing at Ford Southern Africa, suggested that the slight increase in sales from September – with 167 more vehicles sold – was the ‘beginning of some real indication that the market has settled at or near the bottom’.

The figures should be seen in the context of relatively good rental sales, which were down only 1% y-o-y in October 2009, due to the 2010 FIFA World Cup, which South Africa will host. Brent said that, without this boost, overall sales would have fallen 20% y-o-y. Meanwhile, Brand Pretorius, chief executive of McCarthy, has said that industry is ‘not out of the woods yet’, despite mildly positive results. Light commercial vehicle sales remained in the doldrums, down more than a quarter on October 2008.

NAAMSA has estimated that around 450,000 new vehicles would be sold in the country in 2009, down from 533,327 units in 2008. By comparison, 676,097 units were sold in 2007, and a record 714,000 unit sales were achieved in 2006. In the passenger car market, the effects of the credit crunch are accompanied by high price increases, with Volkswagen South Africa saying that prices increased by an average of 9.4% in January and that these ‘are expected to grow even more rapidly in coming months’. The domestic market’s decline could be mitigated by falling inflation and interest rates, although consumers are notably wary of increasing their personal debt levels, as is suggested by a fall in demand for credit.

BMI believes the Iranian industry is likely to miss its targets as high inflation and dampened consumer demand continue to affect sales. We forecast a decline in sales and output of 4.1% and 3.5%, respectively, this year. The industry will not escape the effects of international sanctions and the slowdown, which will result in lower oil prices, higher inflation and sluggish economic growth. Declining bank liquidity due to the fall in oil prices will lead to a cutback in car loans. Lack of credit, positive real interest rates and

Iran Autos Report Q1 2010

inflation will depress growth in the market over the forecast period, ending 2013. As a result, expansion of the domestic, and consequently the global, industry will become leaden.

Impact On Production

In terms of output, production is not expected to decline as sharply in Iran and Egypt as it will in export- oriented Turkey and South Africa. The Iranian and Egyptian industries are protected from external trade, although tariffs in the latter have declined over the years while the former maintains a 100% duty on imports. So long as there is domestic demand, output can be sustained. Some analysts believe that these countries could even record modest growth. Nevertheless, neither will escape the global economic downturn, with the former suffering from the liquidity crunch in the Gulf and the latter from a sharp decline in oil revenues

Turkey is suffering due to the downturn in the EU, with production in Q109 down 59.4% and exports falling by 50-60% y-o-y, the Anatolia News Agency reported in July. This was even steeper than the 35.9%global fall in vehicle output. The Motor Vehicle Manufacturers Association of Turkey has said that it expects 2009 exports and production to fall by 25% and domestic sales to shrink by 20%. The situation is not helped by fluctuations in the value of the Turkish lira, which is making it difficult for carmakers to predict their earnings. The lira weakened considerably against the euro in 2009, which could have given Turkish manufacturers a boost in sales to Europe, had the continent’s vehicle market not been in the doldrums.

Amid a rapid domestic slowdown and an equally disastrous decline in export markets, the South African industry is appealing to its government for more protection, including easier access to credit and low- interest loans. In February, exports fell by 27.5% y-o-y to 14,949 units. In response, carmakers have scaled back production and cut domestic jobs; there are fears that as many as 30,000 workers in the industry could be out of work this year in what the NAAMSA has described as an ‘unprecedented deterioration in operating conditions’. It predicts an overall fall in exports by up to 35% y-o-y to 284,211 units. Aside from the sharp decline in domestic and export sales, the credit crunch is having a dramatic effect itself. Banking groups have reduced their exposure to the industry with the National Association of Automotive Component and Allied Manufacturers (Naacam) claiming that some companies have had their credit facilities either completely withdrawn or cut by 50%, putting huge pressure on cashflow and company survival.

Iran’s long-term export ambitions (and therefore production performance) may receive a small fillip from the recognition of the Organization Internationale des Constructeurs d'Automobiles (OICA), or International Organization of Motor Vehicle Manufacturers), which the country joined in November 2009, the Tehran Times reported. However, market conditions will be a considerably more important determinant of the sector’s future.

Iran Autos Report Q1 2010

Business Environment Ratings

BMI’s rating system for the automotive industry shows the limits of potential returns and the risks to the realisation of returns that carmakers operating in a particular region may face. The unique system assesses crucial factors such as sales and output growth; international trade; market size, location and the level of competition; and takes into account a country’s economic and political backdrop. The ratings system allows analysts to fully expound the potential advantages and disadvantages of investing in MEA car markets, and offers an overall comparison of the key markets in the region.

There are broadly two types of countries in the region: the vibrant free market Arab states in the Gulf region where demand for vehicles is high but where there is little or no automotive industry, and the more heavily regulated markets which suffer high levels of negative risk. In the former, there is little to distinguish between the states in terms of regulation of the automotive market, with the GCC determining customs regulations. In the latter group, there is a spectrum running from the more open economies of Turkey and South Africa at one end, to Egypt and Iran at the other, where higher tariff barriers and greater government intervention in the market are evident. The rankings reveal that market openness and the rate of sales growth has pushed the GCC states further up the rankings, largely because they do not have domestic producers to protect and lightly regulate the market.

Turkey takes top place in the ratings with respect to countries in the MEA, but its lead is narrowing due to the collapse in demand from its key European export markets. The country’s position as a low-cost production hub for Europe spurred growth in automotive assembly in recent years, but the collapse in external demand coupled with a depressed domestic market have dragged down the country’s score. Turkey is currently the second largest carmaker after Iran, but unlike Iran is primarily export-oriented. While Turkey is a relatively open and large automotive market, it is let down by poor ratings for the structure of its economy and relatively poor risk scores. Major weak points are its rigidity of employment, low levels of urbanisation, complex and burdensome bureaucracy and poor long-term economic risk factors. These have a corrosive impact on the Turkish automotive industry and vehicle sales, creating uncertainty and constraining growth. Nevertheless, autos majors have shown continued interest in Turkey, which has in the past overcome concerns over risk. BMI expects Turkey’s lead over the UAE will strengthen once economic conditions improve and the automotive market shows signs of sustained recovery.

The Gulf Arab states – the UAE, Saudi Arabia, Kuwait, and Bahrain – lay in second, third, fifth and sixth place, respectively. The key differences relate to the size of the market, the rate of vehicle ownership, the pace of sales growth and the degree of market risk. The UAE has seen the strongest growth in demand for cars in recent years. In Saudi Arabia, growth is more subdued due in a large part to the lower rates of car loan uptake. Kuwait appears to have reached saturation point, with the market now stagnating, although

Iran Autos Report Q1 2010

performance varies across segments. Although Bahrain’s automotive market is small, it is open and highly competitive with high levels of car ownership. All four states are expected to see a sharp decline in demand in 2009 and 2010 with the UAE and Bahrain are likely to be hardest hit as credit-driven growth comes to an end while the Saudi market will be relatively resilient due to the lower exposure of the market to the fall in lending. The main draw-back, which is seen throughout the Gulf, is the dominance of family-owned exclusive dealerships, which prevent competition within brands and create barriers to market entry for new dealerships. However, in the UAE, different emirates have their own exclusive dealers, enabling greater competition and openings for market entry. Investors have pledged to set up new assembly plants in the UAE, Bahrain, and Saudi Arabia, which could see these states improve on their scores in coming years.

South Africa lies in fourth place in BMI’s regional Business Environment Ratings. Although it is a significant automotive producer and exporter, like Turkey it is negatively impacted by the downturn in external markets. In addition, South Africa has higher customs tariffs than the GCC and the industry suffers as a result of the exchange rate volatility. The stellar growth in car sales seen in recent years has also declined, creating further uncertainty. South Africa may be the most developed economy in sub- Saharan Africa, but compared to Middle Eastern states it lags behind in terms of infrastructure. Consequently, the size of the country’s automotive industry – the regions third largest – is outweighed by the problems relating to the structure of the economy, long-term risk factors and lacklustre sales growth.

Egypt is in seventh place. Its industry size is unremarkable, although it has great potential for expansion with the double-digit sales growth seen in recent years having a positive impact on investor sentiment. On the downside, Egypt is under-developed outside its main urban centres and the regulatory environment for the automotive sector is relatively poor due to high tariff barriers, although the government is slowly liberalising the market. Poor scores for bureaucracy, the country’s legal framework and the level of market openness also drag down Egypt’s country risk score.

Iran is in a poor eighth place, principally due to the closed nature of the market, which is dominated by the state sector with negligible competition from imports. Consequently, in BMI’s global automotive business environment matrix, Iran has the dubious distinction as being having the worst market risk score. The size of the local industry, which is roughly comparable to Turkey, does not provide much mitigation, with Iranian car producers dependent on trade protectionism, despite efforts at export diversification. With the constant threat of international sanctions and serious structural weaknesses in the economy, Iran’s risk factors are poor.

Nigeria is in last place, with a relatively small market and the demise of its production base. The mothballing of capacity and the planned closure of the country’s Peugeot car assembly plant seem to mark the end of the road as far as Nigerian automotive production is concerned. The only factor where

Iran Autos Report Q1 2010

Nigeria scores well is in terms of the labour market, but on most other indicators Nigeria lags well behind the regional average.

Table: Middle East And Africa Business Environment Ratings

Risks to Realisation Limits Of Of Potential Autos Country Potential Market Country Autos Regional Country Returns Market Structure Returns Risk Risk Rating Rank

Turkey 54.6 60.0 44.5 70.2 90.0 50.4 59.3 1

UAE 50.6 33.3 82.7 78.8 85.0 72.6 59.1 2

Saudi Arabia 46.4 38.3 61.3 77.7 85.0 70.4 55.8 3

South Africa 50.2 51.7 47.3 63.6 70.0 57.3 54.2 4

Kuwait 44.6 23.3 84.2 76.1 85.0 67.3 54.1 5

Bahrain 39.6 26.7 63.5 78.9 85.0 72.8 51.4 6

Egypt 41.1 43.3 37.0 60.3 62.5 58.1 46.9 7

Iran 41.9 40.0 45.5 26.5 10.0 43.0 37.3 8

Nigeria 31.8 23.3 47.5 37.1 30.0 44.2 33.4 9

Scores out of 100, with 100 highest. The Business Environment Rating is the principal rating. It is comprised of two sub-ratings, ‘Limits Of Potential Returns’ and ‘Risks To Realisation Of Returns’, with 70% and 30% weightings, respectively. The ‘Limits’ rating is comprised of ‘Autos Market’ and ‘Country Structure’, which have respective weightings of 65% and 35% and are based upon industry growth and size dynamics (‘Market’) and the broader economic and socio-demographic environments (‘Country’). The ‘Risks’ rating is comprised of ‘Market Risks’ and ‘Country Risk’, each having a 50% weighting and based on subjective evaluation of industry regulatory and competitive issues (‘Market’) and the industry’s broader ‘Country Risk’ exposure (‘Country’), which is based on BMI’s proprietary ‘Country Risk Ratings’. The ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings methodology and is designed to enable clients to consider each rating individually or as a composite, the choice depending on their industry exposure in each state. For a list of data and indicators used, please consult the appendix at the back of this report. Source: BMI

Iran Autos Report Q1 2010

Iran – Business Environment Ratings

Iran scores 37.3 points out of a possible 100 in the BMI Automotive Business Environment Ratings this quarter, plummeting 8.1 points as a result of a projected fall in production and sales this year as well as deteriorating Country Risk ratings. This puts it in eighth place in BMI’s rankings, 3.9 points ahead of Nigeria and 9.6 points behind Egypt. The threat of sanctions looms large. With serious structural deficiencies in the economy and the heavy protection of the car market unlikely to change in the forecast period (up to end-2013), the only hope Iran has of raising its score is to ensure growth in automotive output. This is contingent on an easing or lifting of sanctions related to dual-use technology used in both the automotive and nuclear industries, and seeking new avenues of finance and investment to bypass US sanctions.

The controversial re-election of President Mahmoud Ahmadinejad is expected to increase the political divisions in Iran. The country is facing soaring inflation and high unemployment. An Austrian energy firm, OMV, has announced it may limit its investment in Iran's giant South Pars gas field owing to the worsening political climate in the country.

Limits Of Potential Returns

This score is based on a 65% weighting of the Automotive Market score and 35% of the Country Structure score. Autos Market scores are comprised of scores for vehicle ownership, total vehicle stock, total production and output growth over the next five years, and total sales and sales growth over the next five years. Country Structure is measured by urbanisation, employment flexibility, labour costs, and GDP per capita. In this category, Iran scores 41.9 points this quarter, a fall of 8.0 points since the previous quarter as a result of the deterioration in the market. High long-term political and economic risk, along with an extremely protectionist trade stance, investment restrictions and US sanctions make Iran one of the least-attractive business environments in the Middle East.

Iranian automakers benefit from high tariffs placed on foreign-produced vehicles, which pose a major barrier to a competitive market. Protectionism has increased since Ahmadinejad took office, often due to arbitrary policy decisions based on his own political agenda – notably the decision to block imports from South Korea, which hit the production of Kia Motors models, and threats to end imports from France. The projected decline in automotive output due to a shortage of imported automotive parts for European models produced under licence in Iran will have a direct impact on sales, since tariff barriers make it prohibitively expensive to import vehicles causing demand to outstrip supply.

Iran’s automotive sector also faces the difficulties posed by economic sanctions aimed at forcing Iran to give up its nuclear programme. The US is continuing to extend its unilateral sanctions targeting the Revolutionary Guards and an increasing number of Iranian companies, banks, and individuals, as well as

Iran Autos Report Q1 2010

the defence ministry. Under the measures, the US authorities have the ability to freeze the assets of these organisations, as well as the right to prohibit any US citizen or organisation from doing business with the Revolutionary Guards.

The Revolutionary Guards are not an entirely military body: about 30% of their operations are business related, generating an estimated IRR2bn in annual revenues. The labelling of the Revolutionary Guards as a terrorist organisation by the US government in October 2007 could theoretically lead to the prosecution of any private firm or individual conducting business with Iranian firms covered by the US sanctions, including those in which the Revolutionary Guards have a stake. The sanctions are in addition to the Iran Libya Sanctions Act (ILSA), which places financial sanctions on any non-US firm investing over US$20mn in Iran. The UN Security Council has also imposed sanctions on individuals and industrial firms involved in the manufacturing of ballistic missiles and technology for the nuclear industry under Resolutions 1737 and 1747.

Risks To Realisation Of Potential Returns

Risks to Realisation of Potential Returns are comprised of BMI’s Market Risk and Country Risk scores. Market Risk is comprised of scores for the regulatory environment and the competitive landscape in the automotive sector. Country Risk is measured by scores for corruption, bureaucracy, market openness, the legal framework, and long-term monetary, external, financial, and policy factors. The government has made efforts to reduce import tariffs, cutting them to a maximum 90% on passenger cars and 20% on buses. Nevertheless, tariffs are still high and foreign investors are still required to seek local partners to start up assembly plants.

There is also the problem of excessive red tape constraining the private sector, and state-owned firms continue to dominate the autos market. There is little in the way of competition on the Iranian market and importers are forced to participate in an arcane and lengthy application procedure to bring completely built units (CBUs) into the country. The government is opposed to allowing any serious foreign challenge to its indigenous car industry.

Furthermore, Iran’s long-term financial outlook is clouded by the retreat in oil. Due to the fall off in oil prices, a report by the IMF stated that Iran’s oil sector will contract 4% in 2009. Another round of severe economic sanctions is also on the cards as long as the country keeps pursuing its nuclear programme. Were they to be imposed, the fallout of more US and UN sanctions could lead to social unrest in the country already battered by soaring inflation and unemployment. In addition, The Daily Telegraph reported that prominent private businesses and wealthy families have moved tens of millions of dollars out of Iranian banks into overseas accounts due to the political instability with the recent presidential elections. In this category, Iran scores 26.5 points.

Iran Autos Report Q1 2010

Industry Forecast Scenario

Production And Sales

Table: Iran Autos Sector – Historical Data And Forecasts

2008e 2009f 2010f 2011f 2012f 2013f 2014f

Total vehicle sales (US$bn) 8.070 3.948 4.103 4.234 4.410 4.599 4.788

– Passenger cars 4.930 1.966 2.110 2.243 2.407 2.577 2.747

– LCVs 1.500 0.969 0.937 0.898 0.860 0.824 0.789

– HCVs 1.070 0.699 0.675 0.645 0.616 0.589 0.562

– Buses 0.570 0.314 0.381 0.448 0.527 0.609 0.690

– Total CV market 3.140 1.982 1.993 1.991 2.004 2.022 2.041 Total vehicle sales (IRRbn)* 76,087 38,977 41,330 43,923 47,128 50,617 54,278 - Passenger cars 46,482 19,412 21,253 23,266 25,716 28,367 31,142 - LCV sales 14,143 9,563 9,440 9,317 9,193 9,070 8,947 - HCV sales 10,088 6,904 6,797 6,691 6,585 6,479 6,372 - Bus sales 5,374 3,098 3,839 4,649 5,634 6,701 7,817 - Total CV market 29,605 19,565 20,077 20,657 21,413 22,250 23,136 Total vehicle sales (CBUs) 446,300 197,312 212,217 229,396 247,116 263,899 279,753

– Passenger cars 373,537 149,502 165,634 184,030 202,963 220,964 238,040

– LCVs 62,140 40,725 39,564 38,403 37,242 36,081 34,920

– HCVs 9,887 6,673 6,530 6,388 6,245 6,103 5,960

– Buses 736 412 488 576 666 752 833

– Total CV market 72,763 47,809 46,583 45,367 44,153 42,935 41,713

Total automotive production (US$bn) 19.98 22.23 25.62 28.54 32.58 37.17 41.71

Total automotive production (IRRbn) 188,397 219,481 258,061 296,096 348,155 409,167 472,839 Total automotive production (CBUs) 1,108,569 1,191,495 1,243,286 1,297,519 1,354,391 1,409,467 1,461,756

– Passenger cars 942,219 1,012,702 1,050,575 1,089,540 1,129,646 1,167,775 1,203,945

– Commercial vehicles 166,350 178,793 192,711 207,979 224,745 241,692 257,811 e/f = estimate/forecast; Figures do not include tractors or motorcycles. Figures are based on Iranian years, which begin on March 21, e.g. the Iranian 2008 is March 21 2008-March 20 2009. LCVs including commercial vehicles under 16 tonnes gross vehicle weight rating (GVW), including multi-purpose and SUVs. Sources: Organisation Internationale des Constructeurs d’Automobiles, Automotive News, BMI

Iran Autos Report Q1 2010

The Iranian automotive industry has not escaped the effects of the global economic crisis and will struggle to recover from the slump in demand. Consumer demand is expected to remain constrained, given that financing is still difficult to come by. While crude prices rebounded somewhat in the latter part of 2009, they still remain far below the records scaled during the commodities boom and will impact oil revenues. One positive is the relatively high level of cash purchases, which should offer some support to the market. However, given the wealth levels of the country, auto ownership will continue to be limited. According to data from the global consulting firm Booz & Company, once a nation reaches a per capita GDP of roughly US$10,000, car sales accelerate. As in Russia, India, China, Malaysia and Indonesia, Iran has not yet reached that level, although it is expected to reach it soon.

With the Iranian market stagnating, growth for all carmakers will depend heavily on exports and producing overseas. Saipa and IKCO, the country’s two largest automakers, have been seeking export opportunities both for CBUs and CKD kits supplied to assembly lines. The rise of Saipa, which increased its sales 18% y-o-y to become the country's largest carmaker in the Iranian year ended March 31 2009, has been fuelled largely by its expansion into new export markets. BMI believes the two carmakers will continue to seek to tap the growth potential of developing countries. IKCO, which produces about 48% of the nation’s automotive output, produced 353,000 passenger cars in the seven-month period ended October 2009. According to IKCOs vice president of production affairs, Javad Dehnadi, output of the Peugeot 405 was the highest, with 90,067 units made during the period. IKCO also makes various Samand models and other Peugeot models. The latest output figures show a 12% rise in production from the year-ago period, Dehnadi said.

IKCO aims to produce 1mn units a year in the 2009/2010 Iranian year, with 80% produced in Iran and the rest in assembly plants in emerging markets such as Belarus, Azerbaijan, and Venezuela where it has set up joint venture (JV)’s to produce the Samand model. IKCO aims to raise sales to US$20bn in 2010 from US$10bn in the 2008-09 year. BMI believes it will face significant challenges in reaching these objectives due to the global economic slowdown and its impact on both export and domestic markets.

Economic growth in Iran will slow, mirroring the slowdown in all the major economies of the world, and we now see real GDP growth in 2009/2010 falling to a sluggish 2.4%, down from 4.7% in 2008/09. While we are not expecting Iran to fall into recession, our projected growth rate would be the most lacklustre in a decade. Thereafter, growth will begin to pick up again, in line with a slow recovery in the global economy, and over the course of the five-year forecast period we expect growth to average 3.6%. This is substantially lower than the estimated 5.6% average growth rate Iran has enjoyed over the previous five years, when economic expansion was driven in large part by the oil boom. At the same time, in real terms, the average Iranian is likely to feel noticeably poorer over the coming year with GDP per capita to contract around 13% with a resulting 2.5% fall in private consumption.

Iran Autos Report Q1 2010

Market trends will follow the broader trends in the economy. We believe that risks still remain to the downside and that in a worst-case scenario Iran could enter into technical recession at some stage in 2010, which would lead to a further decline in sales.

The high level of risk means that foreign majors are unlikely to seek further involvement in the Iranian automotive industry. Chinese carmakers, which are not exposed to the US sanctions regime in the same way as European majors, are showing an interest in investing in car production in Iran. But BMI believes that the level of capacity they could add will not be enough to counter the impact of declining European involvement. We believe that the industry will make a solid if not spectacular recovery once the global economic recovery gathers momentum.

Trade

Table: Iran Autos Sector – Historical Data And Forecasts

2008e 2009f 2010f 2011f 2012f 2013f 2014f

Autos exports (CBUs) 45,881 36,353 47,796 62,214 74,950 85,648 96,774

Autos exports (IRRbn) 6,531 7,025 8,274 10,081 12,206 14,373 16,610

Autos exports (US$bn)* 0.693 0.712 0.821 0.972 1.142 1.306 1.465

Autos imports (CBUs) 66,503 58,452 70,307 90,659 114,165 136,709 160,381

Autos imports (IRRbn) 12,606 14,263 17,220 21,775 27,497 33,550 39,900

Autos imports (US$bn)* 1.337 1.445 1.710 2.099 2.573 3.048 3.520

Balance (CBUs) -20,623 -22,099 -22,512 -28,445 -39,215 -51,061 -63,606

Balance (IRRbn) -6,075 -7,237 -8,947 -11,694 -15,291 -19,177 -23,290

Balance (US$bn) -0.644 -0.733 -0.888 -1.127 -1.431 -1.742 -2.054 e/f = estimate/forecast, * estimate. Sources: BMI, with data from the Iranian Police, Ministry of Industries and Mines, and company information. Data correspond to the Iranian calendar year (ends March 20), eg 2008 is March 21 2008- March 20 2009

With the Iranian market stagnating, growth will depend almost entirely upon exports. Carmakers have come to realise the importance of external markets and are seeking export opportunities both for CBUs and CKDs supplied to assembly lines, mostly for IKCO’s Samand model, which is assembled from at least 80% Iranian-made parts. The state-run IDRO aims to transform Iran into a major autos exporter in the region by 2013 by targeting markets such as Pakistan, Iraq, and Syria. IDRO expects exports to account for 10% of production, or 315,000 units, within the next four years and for the value of exports to exceed US$9.7bn by then.

Iran Autos Report Q1 2010

Exports have been rising, but from a low base, as evidenced by the latest figures from IKCO. According to Alireza Feiz-Bakhsh, IKCO’s deputy head for export and international affairs, the carmaker’s exports grew in the March-October 2009 period to more than 16,000 cars, as reported by IRNA. By comparison, it exported 8,800 vehicles in the same period of 2008. According to the news agency, Feiz-Bakhsh also said that IKCO exported cars to 40 countries in the seven-month period and plans to safeguard markets and after-sales services in 40 countries.

We estimate that in the 2008 Iranian year (March 21 2008-March 20 2009), exports reached 59,230 units and were worth US$900mn, an increase of 30% y-o-y. As a result, the automotive trade deficit narrowed by over 80% to US$121mn and is expected to go into a surplus from the Iranian 2009. However, BMI is not convinced the demand exists in either domestic or export markets to lift output to full capacity and that export opportunities will be restricted to relatively low volumes.

With foreign assembly lines coming onstream, Iranian carmakers will export more CKDs, leading to a moderation in growth in CBU exports. BMI believes that these will be the principal export of Iranian carmakers, with only relatively modest amounts of CBU exports over the forecast period.

At the same time, automotive imports are expected to rise, but will only comprise a small proportion of total sales in the Iranian market due to the protected nature of the market. Imports of auto parts, versus vehicles, are likely to see greater growth. In October 2009, a mission representing Malaysian auto parts and services secured orders worth US$3mn from automakers and parts importers in Iran. Over the forecast period, we expect the higher unit value of imports compared with exports to contribute to an automotive trade balance deficit.

Quality problems and a restricted range of export markets, almost entirely in the developing world, coupled with the ever-present threat of trade sanctions, are also undermining export growth. The effects of sanctions are likely to hit Iran’s plans to generate US$80bn from the export of spare parts and vehicles within the next 20 years. The government is targeting non-oil industrial exports totalling US$270bn, of which the automotive industry is expected to contribute around 30%. Although we believe that the new mass-market models being built in Iran, notably IKCO’s Aryan and Samand models – fit the requirements and price range of less-developed emerging markets, concerns remain about the long-term viability of JVs in the context of the sanctions regime. With a high level of Iranian-manufactured content in the Samand, IKCO’s ‘world car’ will not face the problem of a shortfall in parts availability as a direct result of the sanctions regime, but the financial impact of sanctions on Iranian carmakers will be felt by debt-ridden Iranian parts makers, leading to disruption of Samand CKD exports.

Iran Autos Report Q1 2010

Macroeconomic Forecast Scenario

Rebounding to Lower Trend Growth Relatively low oil prices will mean that the next five years will see lower real GDP growth rates in Iran than during the last five years. We expect the economy to expand at an annual average rate of 3.5% over the forecast period.

With little in the way of new economic data since we published our last Business Forecast Report, we have left our growth forecasts largely unchanged this quarter. In our view, Iran will pass through the bottom of the economic cycle in FY2009/10 (note: Iranian years begin in March), when we project real GDP growth to fall to just 1.4%. Thereafter, we expect the economy to embark upon a fairly tepid recovery. We forecast growth of 3.5% and 3.9% in FY2010/11 and FY2011/12, and see the economy expanding by an annual average of 3.5% over the course of our five-year forecast period (out to FY2014/15). This compares with an estimated average growth rate of 5.6% in the five-year period from FY2004/05 to FY2008/09.

Now the global economy is looking like it is coming out of recession, the Iranian economy will in turn be lifted, hence our more bullish growth forecast for FY2010/11 than for FY2009/10. Despite the country’s relative international isolation and the fact that it is not dependent on global capital flows or on foreign investment, the global growth story matters. This is because of Iran's one major link with the global economy: oil.

True, the hydrocarbon sector cannot be said to overwhelm the rest of the economy. It accounted for 27.0% of nominal GDP in FY2007/08, and we see its share dropping to around 15% through the course of the forecast period. So while Iran is the world's fourth largest oil producer, its economy is certainly far more diversified than many Middle Eastern oil states. Moreover, given that oil production levels have remained fairly flat since 2003, and our oil and gas team does not see them increasing much over the next five to 10 years, the sector in fact has little direct impact on real GDP growth.

The Indirect Growth Driver However, as crude oil sales, which have typically accounted for 80% of Iran's total export revenues, are then recycled into the wider economy through the banking system and via government spending, the hydrocarbon sector is indirectly a key driver of real GDP growth. In light of our view that Iran will struggle to raise oil output levels over the coming years, the price of oil will therefore be key.

Our outlook for oil prices is informed by our expectation of a fairly weak global economic recovery. This, coupled with a growing focus on energy efficiency in the developed world, will impact demand for oil. We project the OPEC Basket to average US$60/bbl in 2010, before rising to an average of US$70/bbl in

Iran Autos Report Q1 2010

2012, which we see as its longer-term equilibrium price. This compares with an average oil price of around US$94/bbl in 2008. Our forecast for lower trend growth in Iran over the next five years is therefore largely based on our expectations for a period of relatively subdued oil prices.

Public Sector Constrained Looking at GDP by expenditure, fairly stagnant oil prices will curb public consumption growth over the coming years. Given that oil provides more than 50% of government fiscal revenues, rising oil prices meant that Tehran had the luxury of pursuing an expansive fiscal policy over recent years and could finance its large fiscal deficits by dipping into its rainy-day oil fund. Now that it appears that the fund is close to empty, and with oil prices well below the fiscal break-even level, Tehran will struggle to increase its spending levels in real terms.

Investment Curtailed A subdued oil market is also likely to have a significant impact on real gross fixed capital formation (GFCF) growth over the coming years, which will in turn impact headline real GDP growth. Whereas the oil boom of recent years was characterised by an accompanying boom in domestic credit, the collapse in oil prices over the course of H208 led to a sharp slowdown in oil revenues entering the banking system as deposits – and, as a consequence, resulted in a slowdown in bank loan growth. Indeed, banking-sector data show that at the end of FY2007/08 the five-year compound annual loan growth rate came in at 35.0%. By the end of FY2008/09 (the most recent official data), loan growth had dropped to 11.1% y-o-y.

This slowdown in bank lending will have translated into a slowdown in real GFCF growth over the course of FY2009/10. Going forward, a prospective period of subdued oil prices will constrain banks' ability to increase loan growth, hindering investment. Indeed, we forecast loan growth of 15-20% y-o-y over the next five years; in other words, significantly below the growth rates witnessed during the oil boom.

In addition, the slowdown in the domestic economy will have exposed the banking system's poor quality assets. For instance, Iranian banks have been put under considerable political pressure to lend to poor individuals at low interest rates over recent years. Many of these loans will eventually have to be (or already have been) written off. This will hamper Iranian banks' ability to lend over the coming years, putting a brake on real GDP growth. Of course, if oil prices exceed our expectations, banks will be able to expand their loan books more rapidly, and real GFCF growth rates could exceed our current forecasts.

Net Exports Rebalancing We expect the net exports component of GDP by expenditure to be less of a drag on real GDP growth over the next five years than it has been over recent years. High and rising oil prices during the oil boom meant that export revenues, dominated as they were (and still are) by oil sales, skyrocketed. This supported the rial, and as a result Iran's real effective exchange rate (REER) strengthened considerably,

Iran Autos Report Q1 2010

appreciating around 40% from late 2006 to late 2008. This meant that imports became relatively cheap, and that Iran's (non-oil) export competitiveness diminished.

The consequence was that real import growth outpaced real export growth as Iranian businesses and consumers substituted imports for domestically produced goods. Going forward, we forecast Iran to turn out much smaller current account surpluses (see Balance of Payments Outlook), and we see downside pressures on the rial growing. Indeed, we expect to see gradual rial deprecation (against the dollar) over the coming years. The REER is likely to weaken as well. This should lead to something of a rebalancing when it comes to net exports.

Private Consumption Remains Key As trend growth settles into a more sedate trajectory, the main driver of economic expansion will remain private consumption. Since the turn of the century, private consumption has accounted for around 45% of Iran's nominal GDP. But it has accounted for nearly 70% of real GDP growth over this period. As the Iranian population continues to grow at a fairly solid rate – we forecast the population to increase nearly 9mn over the next 10 years, from around 74mn in 2009 – we expect this component to contribute a similar proportion of headline real GDP growth through the forecast period.

Poor Business Environment Economic growth will continue to be hindered by Iran's unfavourable business environment. The country scores a poor 40.2 (out of 100) in our proprietary business environment ratings, placing it above only Iraq, Yemen and Syria in the Middle East. In the World Bank (WB)’s Doing Business 2010 report, Iran ranks 137th out of 183 countries in terms of overall ease of doing business. This broadly aligns with our own rating. The WB places only Iraq and Syria below Iran in the Middle East. Although the WB rates Iran reasonably highly when it comes to 'starting a business' and 'enforcing contracts' (48th and 53rd, respectively), it scores particularly poorly when it comes to 'registering property' and 'protecting investors' (153rd and 165th). The latter indicator is especially significant as private-sector economic growth will be severely curtailed if investors feel insecure.

Risk to Outlook Given the importance of oil to our assessment of Iran's economic outlook, there are both upside and downside risks to our real GDP projections stemming from our oil price forecasts. Moreover, if the standoff between the West and Iran over the latter's nuclear programme is resolved peacefully, the various sanctions against the country could be rescinded. This could lead to a large increase in much needed foreign investment into Iran's oil and gas sector, potentially boosting output levels and, as a result, real GDP growth rates. For now, however, Western oil majors are staying away from Iran, and oil companies from states relatively immune from US pressure (such as China and South Korea) are the only ones increasing their investments in the country.

Iran Autos Report Q1 2010

On the other hand, the US could attempt to impose even harsher UN sanctions on Iran, though China and Russia are likely to attempt to water down any prospective measures (if they agree to them at all). However, if tougher sanctions were inflicted (and these were adhered to), this would put downside risks on our growth forecasts. In the worst case scenario, the diplomatic standoff between Iran and the US could escalate into a military conflict, with dire consequences for the Iranian economy.

Table: Iran – Economic Activity 2007-2014

2007 2008 2009e 2010f 2011f 2012f 2013f 2014f Nominal GDP, IRRbn 1,2 2654948 3320590 3419152 4067742 4903667 5835559 6811822 7844221 Nominal GDP, US$bn 1,2 286.30 347.10 341.10 395.90 463.40 535.40 606.70 678.30 Real GDP growth, % change y-o-y 1,2 7.8 4.7 1.6 3.5 3.9 3.7 3.2 3.1 GDP per capita, US$ 1,2 3,952 4,735 4,593 5,264 6,085 6,945 7,778 8,595 Population, mn 3 72.40 73.30 74.30 75.20 76.20 77.10 78.00 78.90 Unemployment, % of labour force, eop 1,4 11.9 12.5 14.0 13.5 13.0 12.5 12.0 12.0

Notes: e BMI estimates. f BMI forecasts. 1 Year Begins in March (Iranian calendar); Sources: 2 CBI/BMI; 3 IMF/BMI; 4 Statistical Centre of Iran

Iran Autos Report Q1 2010

Competitive Landscape

Financial Issues

Firms across the Iranian manufacturing sector are struggling with rising levels of debts, with many effectively insolvent and unable to pay their workforces. The automotive sector is no exception. The government has pledged to protect the economy from the effects of the global economic crisis, but Iran’s state-owned enterprises are hurting. In addition to IKCO facing a liquidity crisis, 150 companies and the aluminium producer Iralko are reported to also be facing major financial woes. On the other hand, Iran’s banks have remained financially healthy, helped by a boom in Islamic financing. According to The Banker magazine, Iranian banks now hold US$235bn of shari’a-compliant assets, which accounts for more than one-third of total shari’a-compliant assets worldwide.

IKCO has experienced liquidity issues and in July 2009, Tehran announced a US$1bn rescue package for the company, which reportedly had US$9bn of debt and US$10bn of assets. IKCO is expected to sell its shares in Parsian Bank, which are valued at approximately US$200mn. The company also announced plans to sell 50 of its affiliate companies in an effort to raise capital. The head of IKCO told Iran News Daily it plans to shutter money-losing units, reduce the number of different models manufactured and enhance production of fuel-efficient vehicles. Despite the government’s aim of achieving greater self- sufficiency in automotive parts, the Society of Automotive Spare Parts Manufacturers claimed that by mid-2008, parts producers were owed unpaid debts of around US$1bn by vehicle manufacturers. The government has brokered a deal between part makers and IKCO and Saipa to structure loans and bring forward repayment deadlines. Yet previous loan arrangements have not worked and the Confederation of British Industry (CBI) has blocked moves to enable industrialists, such as carmakers, to apply for bank loans without having paid off previous loans.

The possibility of several parts suppliers going bankrupt is a further setback for automotive production in Iran. Yet carmakers are reporting rising profits, indicating that the main problem is not the profitability of the automotive industry but the country’s complicated and poorly enforced commercial legal code, which undermines the effectiveness of the Iranian judicial system. There is certainly interest in maintaining the profitability of politically well-connected carmakers, at the expense of parts suppliers, by defaulting on loans. Political interference in the judicial process is rife, with clerics effectively in control. Resorting to the court system seldom leads to speedy dispute resolution and written contracts are only rarely of any use in investment disputes. Consequently, automotive parts makers are at the mercy of the interests of the ruling political class and its business interests.

However, the financial problems of parts manufacturers will have a broader impact on the automotive industry and its ability to grow and compete on the global market. Parts makers need to improve quality

Iran Autos Report Q1 2010

in order to reduce faults in finished products, but will struggle to do this if they are heavily indebted and unable to invest. This has a knock-on effect on the international reputation of Iranian car models, which has never been good, and the efforts of Iranian carmakers to market cars in the developing world. Suppliers’ financial problems also undermine the self-sufficiency the government is supposedly striving for in the automotive industry.

New Fuel Technologies

The government is prioritising the development and use of fuel-economic engines in an effort to achieve greater self-sufficiency in refined oil products. Iran has a serious deficit in its refining sector and relies on imports. Meanwhile, it pays heavy fuel subsidies that are a drain on the country’s finances. Additionally, major cities, particularly the capital Tehran, are suffering high levels of pollution, which pose a significant public health risk.

Iran spends US$10bn per year on its subsidised fuel, with over half of the fuel used imported. By cutting back on its fuel usage, Iran aims to not only reduce its fuel bill, but also its international dependence as tensions grow over the country’s nuclear programme. The country will also be looking to protect its economy, as around 80% of income is generated by crude oil exports, according to the local press, but government experts have warned that oil expenditure could surpass income within 10 years. Approximately 700,000 new cars are being added to Iran's roads annually and although demand for fuel has abated somewhat due to the global economic recession, the low price of fuel has given Iranians little incentive to drive less.

With the longer term in mind, Iran has forged ahead with production of more fuel-efficient auto parts such as engines. In November 2009, IKCO unveiled a new diesel engine, which uses advanced technologies to consume less fuel, while at the same time maintain a powerful performance. The engine, which uses approximately five litres every 100 kilometres, has achieved the Euro 5 emission standard. Iran spent a reported US$20mn on the engine, and it is expected to cost roughly less than US$1,000 when produced on a mass level.

Iran is also focusing its attention on building greener cars and in September 2009 unveiled a two-seat electric car, state. The car reportedly complies with the necessary standards to be produced at a mass level and used in cities and other urban areas. The vehicle, which was developed by students at Tehran’s Khaje Nasir Toosi University, can cover 50 kilometres when charged and is capable of reaching speeds of up to 80 kph.

IKCO, whose output accounts for half of the new vehicles on Iran’s roads, has also developed natural- gas-fuelled engines. A systematic change to dual-fuel and natural-gas-powered vehicles by IKCO should have a significant impact on the country’s oil usage. The company’s ambitious exports plans could be

Iran Autos Report Q1 2010

buoyed by the rapid development of alternative fuel vehicles, which may find a niche in markets where there is demand for green cars but local manufacturers are still developing the vehicles. In BMI’s opinion, however, the main problem here would be finding export markets with a suitable infrastructure for the dual-fuel and natural-gas only vehicles.

According to Natural Gas Vehicle for America (NGVAmerica), a Washington, DC-based group that represents companies interested in promoting natural gas and biomethane as transportation fuels, there currently are 5mn NGVs on the road around the world. Argentina is the world's leader with more than 1.5mn NGVs, which represent one-fifth of the country’s vehicles. It is followed by Brazil and Pakistan, which each have more than 1mn NGVs on their roads. China, India, Iran and Germany are other fast- growing NGV markets, according to the group.

BMI believes there will be little difficulty for Iran in becoming a dual-fuel market, as compressed natural gas (CNG) projects have been a key focus of the Iranian Fuel Conservation Organisation (IFCO), established in 2000. By September 2006, there were 326 CNG stations in service with a further 432 under construction, according to the International Association for Natural Gas Vehicles. There are also growing numbers of specifically produced CNG-fuelled vehicles on the roads, with national manufacturer IKCO announcing in July 2007 that it would step up production of dual-fuel cars. IKCO’s manager, Manouchehr Manteghi, has claimed that the company pre-empted the rationing and has been producing 1,300 dual-fuel cars out of the total 2,200 units produced daily. He also said that this figure would rise to 1,500 per day.

In June 2008, the government ordered carmakers to reduce output of petrol-fuelled vehicles in favour of dual-fuel and CNG alternatives. The government is aiming for a 60:40 split in production in favour of CNG and dual-fuel cars. In the public transport segment, 80% of vehicles will be required to have dual- fuel or CNG engines. The same proportion is laid down for pick-up trucks under the new plan.

In late July 2008, the Ministry of Industries and Mines revealed the extent to which production of vehicles powered by CNG is rising. Speaking at the First National Conference on CNG and Allied Industries, Minister of Industries and Mines, Ali Akbar Mehrabian stated that 120,000 CNG-powered vehicles had been produced in the first four months of the current Iranian year (March 21-July 21 2008). He said that sales of these cars had risen from less than 20,000 in 2005 to 146,000 in 2006 and up to 429,000 in 2007. He added that IKCO had an annual production capacity of 200,000 CNG vehicles, while fellow domestic producer Saipa will be brought into line with similar output. He also underlined the need for improvement in refuelling infrastructure, after-sales services and long-term planning for the vehicle segment.

Iran Autos Report Q1 2010

Quality Control

Quality control remains a major issue in the Iranian automotive sector. The Iran Standards and Quality Control Company (ISQCC) raised widespread alarm about the level of faults in Iranian manufactured cars back in December 2005, when it found that models with a high level of locally sourced content had a far higher number of faults than those assembled from imported CKD or semi knocked down kits (SKDs). The Samand had over 300 faults per car on average, while the Kia Price and the Peugeot RD had more than 500 faults. At the time, industry bosses insisted that quality had improved.

However, the problem of poor levels of quality control arose again in September 2007 when the Ministry of Industries and Mines set up a committee to probe the problem of highly dangerous fires caused by engines installed in Iranian-manufactured Peugeot models. In the first half of Iranian year 2007-2008, 150 people were killed in Peugeot cars, mostly the 405 model, which caught fire. In 2006-2007 around 300 died. The Iranian parliament’s Industries Commission has blamed Peugeot for the exploding vehicles and demanded compensation from the French company after IKCO claimed that a problem in the fuel systems of the cars was the cause.

BMI does not believe the safety problems are the responsibility of Peugeot, since the problems have been reported in other Iranian-manufactured models and globally the French firm’s safety record is comparable with any other autos major. Despite the concerns over Iranian-manufactured Peugeots, IKCO appears to have made significant improvements to the quality of the Samand model since the ISQCC report, probably as a result of the application of more stringent safety standards in foreign markets where the car is sold. In September 2007, the Russia Standards Institute authorised the import of Samands from Iran Deputy Head of Russia Road Police Alexander Kolikov said ‘the Samand is a high-quality car and in view of environmental and safety regulations, Russia Standard Institute accredits IKCO.’ He added ‘Samand can compete with Japanese and European cars and we look for wider business with Iran in the future.’

The problem of quality is due in large part to the poor quality of parts suppliers. It is no coincidence that the models that score worse in terms of quality are those with the highest level of locally manufactured components. For instance, the poor-quality Pride and the Samand source 80% and 95% of their parts and components from local manufacturers, respectively, whereas the relatively high-quality Peugeot 206 is comprised of just 60% locally manufactured parts. But the problem is not solely related to local parts producers. Quality is also determined by the technologies used in production, adequate training of technicians and the efficiency and performance of company management. Greater attention is being paid to quality control for models marketed abroad, seemingly at the expense of those destined for the domestic market.

Iran Autos Report Q1 2010

Trade Sanctions And The Iranian Car Industry

The automotive sector has been hit by sanctions covering dual-use technologies. Iranian carmakers have struggled to import parts from Europe as they have had difficulty securing letters of credit from European banks, which are under US pressure. The commercial vehicle (CV) segment is more self-sufficient in parts and less dependent on European suppliers, which insulates it from the effects of the sanctions regime.

The US has been taking a tough approach to Iran, which has refused to halt its pursuit of nuclear programme, In November 2009, President Barack Obama said he was talking with allies about fresh sanctions against the country, as reported by the Associated Press and Time.com. Obama did not disclose details about what potential new measures were being discussed, the report said, adding that the US leader appeared to hold out the option of diplomacy in a bid to get Iran to the negotiating table. Iran claims it is not using its nuclear work for weaponry purposes.

At the end of July 2009, the US Senate voted to ban companies that sell gasoline and other refined oil products to Iran from also receiving Energy Department contracts to deliver crude to the US Strategic Petroleum Reserve. Chancellor Angela Merkel added Germany was prepared to use sanctions to convey how serious it is about reaching the goal of stopping Tehran from developing nuclear weapons. Germany is Iran's biggest source of European imports and heavy industrial goods. Last year, such imports were worth about $5.7bn.

Iranian politicians announced in February 2008 that they were prepared to cut all economic ties with France in response to Paris’s alleged ‘hard line against’ the Iranian government, threatening an end to carmaker IKCO’s relationship with French autos majors. Peugeot and, more recently, Renault have provided the basis for the Iranian carmaker’s drive to modernise production in recent years. Its flagship Samand model is based on the Peugeot 405 platform, which is also utilised for IKCO’s Peugeot Pars model.

Iran imports over EUR1bn worth of automotive parts every year from France, and Iranian industrialists have even been supportive of selling significant stakes in the country’s carmakers to the French autos majors. However, BMI has always believed this would be met with resistance from hardliners within parliament as well as the administration led by President Ahmadinejad, which has had a tempestuous relationship with the French manufacturers.

Tehran has used the automotive industry to put political pressure on foreign governments, but with little effect. In late 2005, Saipa was unable to import CKDs from South Korea for the assembly of Kia Motors models following a reported ban on goods from the country in response to its referral to the United Nations Security Council (UNSC) over its nuclear programme. The production of the Rio model almost

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ground to a halt, while the Pride model was seriously affected despite its 80% local content. The Iranian government later quietly lifted its embargo, after the automotive industry and legislators protested against the block on automotive parts.

The threats to IKCO’s French partnerships demonstrate that the Iranian automotive industry’s progress is at the mercy of the regime’s political priorities. The production of IKCO models abroad is mostly limited to countries allied to Iran: Syria, Venezuela, Sudan, Belarus, and Azerbaijan. None of these operations make commercial sense, but the low-volume JVs are intended to be prestige projects to cement political relations rather than generate profits. An end to the carmaker’s relations with France could doom these projects, which rely on IKCO’s production licences and French parts supplies.

Ad hoc Iranian sanctions on imports from France are likely to be far less damaging in the long run than the possible enforcement of any comprehensive sanction regime against the country. The main risk comes from the implementation of the Iran-Libya Sanctions Act of 1996 (ILSA). The US government could theoretically cause significant problems for European firms with a presence in Iran, but has yet to move against Peugeot or Renault. Uncertainty and increased risk perception could stop autos majors investing in Iran, holding back technological advances in Iranian automotive manufacturing and limiting Iran’s ambition to expand its car export market. The involvement of foreign majors in the automotive sector has revolutionised the industry’s technological capacity and model designs. An end to this could lead to a serious set-back for the future of Iranian carmakers.

Any sanctions that severely undermine the Iranian economy will have an impact on consumer demand, leading to a potential fall in sales. According to BMI calculations, if annual private consumption and GFCF growth of 6% and 8%, respectively, plummeted 50% in reaction to a sanctions regime, our GDP growth forecast would more than half, causing automotive sales growth to fall by a similar amount.

Despite the risks facing the industry’s relations with European carmakers, Iranian parts manufacturers are shrugging off the possibility of economic sanctions against the country and are making a concerted attempt to enter the European market. While Iranian manufacturers appear undeterred by their country’s pariah status, BMI believes European firms are likely to be more mindful of political developments.

Despite the damaging implications of limited sanctions, a number of factors, specifically Russia and China, are likely to alleviate pressure on the Iranian government. Russia and China present an alternative investment source for the country, and appear willing to step in where others have cautiously exited. China’s Chery Automobile Corporation has recently shown great interest in Iran’s automotive sector, while production of Russian Kamaz trucks has begun in Iran. However, neither Russian nor Chinese carmakers can replace European majors, such as Renault and Peugeot, whose involvement has revolutionised Iranian car manufacturing.

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Privatisation

In March 2009, IDRO, which owns 38% of IKCO and Saipa, said that Iranian carmakers have benefited from restructuring efforts the government has called for in order to prepare them for privatisation. Mehdi Lori Amini, the IDRO’s director of investment and stock market affairs, observed that Iran’s automotive production now exceeds 1mn units and that more than 90% of components are produced domestically. By comparison, before 1979, Iran’s automotive output did not even reach 50,000 units.

IKCO and Saipa are both due to be privatised in 2010, but Amini noted that the IDRO might follow a policy of transferring the shares it owns in small amounts. He also suggested that the automaker would only be transferred to a sector that remains committed to domestic manufacturing. Amini said that the IDRO aims to achieve full self-sufficiency in domestic production and create a national brand that can ‘compete with accredited foreign-made products’.

The IDRO has indicated that its complete stakes in Iran Khodor and Saipa may be privatized, but BMI remains sceptical about whether privatisation in the automotive industry will go ahead. We also believe that there will be significant domestic opposition to foreign ownership of the national car industry, which could challenge the current administration’s drive towards self-sufficiency and its use of the automotive sector for political ends. Foreign bidders need approval from the Ministry of the Economy, which will make parliament’s viewpoint on the bidding process largely irrelevant.

BMI believes that rather than a sell-off of the state’s nearly 40% stake, privatisation is likely to consist of acquisitions through the initial public offerings (IPO) on the Tehran Stock Exchange. Bank Melli is pioneering the First Persian Equities Fund through its Mehr subsidiary, which offers European hedge funds the chance to engage in high-risk investment in Iranian stocks and shares. Mehr has stated its intention to use the fund to invest in blue-chip stocks such as IKCO. However, this is a poor substitute for direct investment from foreign autos majors, which can offer a transfer in technology and skills that could make the Iranian car industry commercially successful on the international market.

Since Mahmoud Ahmadinejad was re-elected president on June 12, his government has put forth a wide variety of privatisation plans, including banking, insurance, industry, and power projects. However, it remains to be seen if these plans will include the auto industry and if they will come to fruition.

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Industry Developments

IKCO has received a licence from French carmaker Renault to produce the Renault L90 (Tondar) Sport model commercially, Mehr News Agency reported in November 2009. IKCO’s deputy CEO said the carmaker was given the licence after achieving competitive standard requirements set by Renault.

The first Iranian-built Renault Logans were launched in June 2007, labelled as the Tondar-90. The model is built by national manufacturers IKCO and Saipa, through a JV with France's Renault and IDRO. However, the economic crisis has significantly slowed production. However, the economic crisis has significantly slowed down production. When reporting its H109 results, Renault said that more than 19,000 Tondar-90 (Logan) were sold, but that accelerating production of the vehicle was hampered by the financing and supply constraints of suppliers in Iran. Commercial production licence for the Tondar sport would help in increasing the model's sales.

Also in November 2009, IKCO introduced its first nano technology-based car at the 'Iran Nano 2009' exhibition in November 2009. The carmaker’s deputy director of strategy and planning said the new Samand Soren is equipped with nano technology, used in developing auto components. The Soren is a superior version of the Samand and is the first Iranian-manufactured passenger car to meet the Euro-3 emission standards, making it more marketable abroad.

Russian automaker GAZ Group is in the process of negotiating a deal to provide vehicles for Iran, just- auto.com reported in August 2009, citing Oledg Markov, director for sales and marketing for GAZ’s commercial vehicles department.

In July 2009 South Korean automaker Hyundai Motor revealed plans to launch its smallest hatchback city car, the i10, in the Iranian market. Kerman Khodro and IKCO will sell the i10 in the country.

In May 2009, the chief executive of the Syrian Iranian Automobile Manufacturing Company (SIAMCO) told the Al-Hayat newspaper that Sham cars sales in the Syria market had fallen 50% due to the global economic crisis. He added that SIAMCO was selling 200 Sham’s per month, compared with the 400 it was selling before the global recession. SIAMCO is a US$60mn JV between the two countries. The company is made up of three parties: two Syrian and one Iranian. IKCO owns a 40% stake, the Syrian government own 35% and private Syrian firm Al Sultan controls the other quarter of the company. In April 2009, Reuters reported that IKCO had replaced the managing director, Manouchehr Manteghi, who headed the automaker for six years, with Javad Najmuddin. The news agency said the replacement was related to the decline in IKCO’s market share and unprofitable attempts to develop a foothold outside Iran. Iranian news outlets have reported Manteghi as saying that IKCO posted sales of US$10bn and exported 42,000 vehicles in the 2008-2009 Iranian year. He added that IKCO posted a profit, but did not disclose specific figures. Najmuddin, Manteghi’s replacement, previously led a unit of rival Saipa.

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In February 2009, IKCO launched the new Peugeot Pars automatic and diesel 206 SD models, becoming the first Iranian carmaker to produce diesel-powered passenger cars. The company also planned to introduce an automatic Samand in March. The automatic Pars uses PSA Peugeot Citroën’s 1.6-litre TU5 engine, combined with four-speed, electronically controlled AL4 automatic transmission. It is the first automatic car assembled in Iran in classes C and D that meets Euro IV emissions standards. Production capacity is planned at about 20,000 units per annum. Annual output of 7,000-10,000 units is planned for the diesel model. The cars are expected to be exported to Algeria, Turkey, Romania, Bulgaria, Algeria, Morocco, Albania, Tunisia, Croatia, Serbia and Azerbaijan.

The launches come at a time of increased activity for the national manufacturer, which is taking part in the ‘People’s Car’ project. IKCO has joined forces with the Organisation of the Islamic Conference (OIC) for the plan, which envisages production of 1mn ‘People’s Cars’ per year from 2009 and 500,000 multipurpose vehicles (MPVs) from 2010. Priced at US$6,000-8,000, the car is due to reach the market by 2009 and will be followed by two other models, an MPV and an SUV.

In 2009, Saipa Diesel Company exported the first Iranian trucks to South Africa. The models include FM, FH440, and FM 6x4 trucks. The company plans to increase truck exports to Angola in the near future and Iraq remains one of the major markets the company is targeting.

In December 2008, Saipa unveiled its new Miniator model, a sedan that has been developed by the carmaker as a replacement of the Kia Pride. Production capacity at the firm’s new Kashan Saipa subsidiary will be 200,000 units per annum. The Miniator will be priced at under IRR100mn (US$9,500), supposedly to appeal to less affluent people. However, BMI believes that unless those with low incomes can earn additional income from the vehicle, it will be unaffordable. The Miniator would be 10-25% more expensive than the Pride, which is the cheapest option in the market. The Pride had earned a reputation for poor quality, but BMI doubts the Miniator will be free of problems. With 100% content localisation, the model is reliant on domestic suppliers, which are the weakest link in the chain in Iranian car manufacturing, with high fault rates, an erratic supply, and a lack of adequate financing.

Chinese carmakers are following European majors in setting up JVs with Iranian carmakers. In June 2008, Chongqing Chang’An Automobile announced a JV with IKCO. The first model to be built will be a version of Chang’An’s Benni/BenBen city car. Assembly of the model is scheduled to begin in H109, with initial capacity at 50,000 units per annum with the possibility of an increase to 250,000 units. The move is intended to help raise the Chinese car manufacturer’s sales outside China from 50,000 units in 2007 to 200,000 units by 2011. It is unclear whether the Iranian-assembled model will be exported.

In January 2008, IKCO CEO Manuchehr Manteghi said that a Chery Automobile production line would soon be launched at its Khorasan Razavi Province factory. The first phase of the line was due to be

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inaugurated once the two sides had finalised contracts, according to Fars. Another Chery production line is also set to be launched in Mazandaran Province with an estimated annual production capacity of 200,000 units. Production in Mazandaran is set for 2009 or early 2010. In the meantime, Chery assembly in Khorasan Razavi will begin based on imported CKDs.

According to a deal signed in August 2007, Chery will build its compact QQ6 sedan, also known as S21, a new car launched in 2006. IKCO will own 49% of the JV, Chery takes 30%, and Canada’s Solitac takes 21%. In a statement, Chery’s president, Yin Tongyao, said that the venture in Iran would help strengthen its competitiveness in the Middle East. The car it will produce in Iran still has some underpinnings of old SEAT Toledo technology (Chery bought an old SEAT Toledo to start production in 1999). The company has some work to do to bring its vehicle technology up to international standards, but part of its recent success can be credited to the fact that it has already developed a complete range of engines with Austrian specialist engine technology company AVL. Its engines are part of a family called ACTECO and range from 0.8 litres to 4.0 litres.

IKCO’s Foreign Production

IKCO is working intensively to expand its foreign markets, which bring in much-needed hard currency. To achieve this, the company is expanding its manufacturing base outside Iran, with a goal of producing 200,000 units annually overseas. At the same time, it is seeking to expand its foreign sales network. IKCO has taken advantage of the emergence of private financing in the last decade to set up its own bank, Parsian. It currently holds a 30% stake in the Parsian, which reportedly has become the biggest private bank in Iran with 60% of deposits and credits in the sector.

In October 2009, IKCO’s CEO said that an agreement had been signed between IKCO and Peugeot, to manufacture the Peugeot 207i car at IKCO facilities outside Iran. Under the agreement, IKCO will be able to export the model to 63 countries. The hatchback model will be launched by the end of the Iranian year (ending March 20 2010). The 207i model will be primarily exported to Russia, Turkey, Ukraine, Bulgaria, Serbia, Belarus, Central Asian countries, North African countries and the Persian Gulf littoral states.

The agreement came on the heels of a similar agreement reached between the carmakers a month earlier. In September 2009, IKCO and Peugeot signed a deal which gave IKCO the right to manufacture the Peugeot 206, 207 and Pars models outside Iran. The vehicles would be made at IKCO’s facilities in Venezuela, Senegal and Syria, IKCO said. In May 2009, IKCO completed the second phase of its plant in Syria and was set to begin exporting of the low-cost Samand. The US$60mn expansion project takes the facility’s annual production capacity from 10,000 to a potential 30,000 units, thus enabling the firm to begin regional exports of its sedan. IKCO has concentrated on expanding its own ranges, as opposed to those it produces under license to other manufacturers. The latest models unveiled include a new version

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of the Samand, a wheelchair-accessible Samand, the R90 station wagon, and a next-generation minivan powered by LNG. In April 2009, the automaker revealed a brand new, domestically produced model, the Runna.

The Samand is primarily being targeted at emerging markets, in much the same way as Renault’s Logan. The model is produced in Iran, Syria, Venezuela, Azerbaijan, Belarus and now Senegal through JVs, and forms the cornerstone of IKCO’s overall export strategy. In Q109, it was revealed that IKCO intends to spend US$20mn on establishing a facility to manufacture cars in Herat, Afghanistan. The Samand assembly lines are low-volume producers and are unlikely to enable IKCO to significantly impact autos majors in their target markets. Total overseas production of the Samand is unlikely to exceed 150,000 units per annum over the next five years and is unlikely to be profitable for IKCO. BMI believes the carmaker’s overseas JVs are prestige projects intended to cement political ties with Tehran’s foreign allies, rather than develop a commercially viable mass-production ‘world car’. Siamco, the JV between IKCO and Syria’s Al-Hendesieh and Al-Sultan, also plans to raise the local content of its Syrian-built cars. The bodywork was previously imported from IKCO, but the opening of two new workshops in March 2009 enabled production and bodywork painting to be carried out on-site. This will allow the plant to increase output 40%, thereby facilitating exports to other markets in the region. The advantage for domestic consumers is that Syria’s Ministry of Industry is working with the Ministry of Finance to cut registration taxes for the model. Duties on components produced in the country are to be cut 50%.

In May 2008, IKCO announced it had established a showroom in the UAE to supply vehicles throughout the country, which has a significant Iranian population. IKCO said it expects the UAE to represent over 40% of its Middle East sales. Meanwhile, Turkey has issued a permit to IKCO to import 10,000 Soren sedans, thanks to the car’s compliance with European ECE94 safety standards.

IKCO’s strategy suffered a setback in February 2008 when it indicated it may end its JV with Chinese carmaker Jinhua Youngman Automobile Manufacturing a little over a year after it was formed. The Zhejiang-based firm failed to get sufficient technical support from its Iranian partner and instead deepened its relations with British automotive firm Lotus Engineering, according to Shanghai Securities News. IKCO had signed a deal with Youngman in 2006 to set up a JV in China, with Youngman holding a 70% stake. The tie-up, part of IKCO’s plan to tap into the emerging Chinese market, included a plant to make 30,000 Samand sedans per year in Shandong Province. Details of the break-up have not been announced. The withdrawal from the tie-up with Youngman is a major setback for IKCO’s hopes of marketing its flagship budget Samand model in the fast-growing Chinese market. China was to be the largest foreign market for the Samand, with a total investment of US$60mn earmarked for the project.

Samand production began in Senegal in December 2008 at a new US$60mn facility in Dakar. SenIran Auto JV is owned by IKCO (60%), the Senegalese government (20%), and private investors (20%). Capacity is targeted at just 10,000 units per annum. The plant had been scheduled to begin production by

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March 2008, but missed its target. In addition, IKCO will set up three after-sales service centres in Senegal and supply 2,000 units of the model to the country’s taxi fleet. In terms of exporting throughout the region, IKCO will benefit from Senegal’s membership of the West African Economic and Monetary Union (UEMOA) trading bloc, which includes Benin, Burkina Faso, Côte d’Ivoire, Mali, Nigeria, Guinea-Bissau, and Togo. However, at such low volumes, it is doubtful that the Samand will achieve any significant presence on the West African market.

Table: Samand’s Overseas Reach

Country Capacity (CBUs per annum) Start-up Total Investment (US$mn)

Azerbaijan 6,500 first stage, 18,000 second stage May 2006 10

Belarus 6,000 first stage, 60,000 optional second stage August 2006 25 (40 for optional second stage)

Venezuela 15,000 November 2006 11

Syria 5,000 2007 60

Senegal 15,000 first phase; 45,000 second phase na na na = not available. Source: BMI

In August 2006, an assembly line manufacturing IKCO’s affordable Samand ‘world car’ model was inaugurated in Minsk, Belarus, marking the Iranian auto manufacturer’s first production line in Europe and the revival of the Belarusian car industry. The Unison Company is manufacturing the vehicles under licence. IKCO says it intends to use Unison’s facilities as a regional production centre for exports to the rest of the CIS and Eastern European EU states such as Poland.

In December 2008, Iran and Belarus signed an agreement to launch a US$36bn second phase of the production project, which is due to come into operation in mid-2010. It will bring annual production capacity to 120,000. However, as of July 2009, the company announced it had made just 103 Samand vehicles in the first six months of 2009, which represented a y-o-y rise of 26%. The Belarusian Industry Ministry has insisted that the Unison should reach a production level of 5,000 units annually starting in 2009 and the factory is expected to make 20,000 vehicles in 2010.

The Unison factory was formerly owned by Ford Union, a JV between Ford Motor (51%), the government (26%), and Belarusian Ford dealer Lada (23%). It began manufacturing Ford Escort cars and Transit vans in 1997, but production was halted in 2000 and the plant was mothballed. In 2004, Unison began assembling a small number of Lublin 3 vans from SKDs imported from Poland’s Intrall.

In May 2006, a production line for IKCO’s Samand model in Azerbaijan was inaugurated. The project cost US$10mn to complete, with investment provided by Azerbaijan and technical assistance provided by

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IKCO. In the first phase, output amounted to 6,000 units per annum and was set to rise to 18,000 by the end of the 2009 Iranian year (March 20 2010). The plant’s total capacity is 30,000 units per annum. The AzSamand plant will supply markets in the CIS, which includes Russia, Belarus, Uzbekistan, Tajikistan, Kyrgyzstan, Kazakhstan, Turkmenistan, Georgia and Ukraine. IKCO is planning other production lines for the Samand model. The company is setting up plants within Iran that are within easy reach of the CIS, such as a planned production line in Iran’s Gilan province on the Caspian Sea coast. The plant’s location is strategically important, putting it close to markets in Central Asia and the Caucasus.

In February 2008, IKCO decided to establish a Samand production facility in Turkey, having rejected Bulgaria as a potential site. The plant will serve as the carmaker’s springboard onto the European market. In January 2008, IKCO began distributing Samands in Turkey through MYS Holding, which has a network of 16 dealers and 35 service stations in Turkey. The planned plant will be a JV between the two, with an investment of EUR60-200mn. Although IKCO has said it had increased its planned export of Samands from 3,000 to 10,000 units in the initial phase, only 1,000 cars had been ordered in the first month of the car’s launch on the Turkish market. The company was attracted to Turkey for its large automotive supply sector and its access to Russia, Ukraine, and the Balkan states, where sales growth is strong.

Commercial Vehicles

Background The Iranian commercial vehicles industry is dominated by Saipa Diesel, Zamyad and IKCO Diesel. These are subsidiaries of the country’s largest automotive producers, Saipa, including Zamyad, and IKCO. Other commercial vehicle producers include bus manufacturer Shahab Khodro, which is owned by the Astan Quds Razavi religious organisation. For the most part, the automotive sector in Iran remains under government control through publicly owned funds and institutions, IDRO being the prime example. In 1979, following the Islamic revolution, the industry was fully nationalised. During the war with Iraq from 1980 to 1988, the Iranian government tightened its grip on the automotive sector, shifting production priorities towards the war effort and applying centralised-planning management. The end of the conflict caused autos demand to soar, but manufacturers were unable to increase production due to shortages of working capital and other financial and technical problems. This prompted the automotive industry to begin outsourcing some of its production by 1993. In that year, the Iranian parliament passed the so-called Automotive Law, following a balance-of-payments crisis which imposed huge tariffs on completed vehicles (in practical terms, a ban on imports) and introduced incentives to local manufacturers to increase the integration of domestic-made auto parts and components.

The tonnage transported by road freight transport in Iran is set to rise to around 5.0% by the end of the decade. This growth will drive both sales and production.

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Table: Commercial Vehicle Production – Share Of Production By Segment And Manufacturer (%)

Pick-ups Vans Minibuses Buses Trucks

IKCO 55 na na na na

IKCODiesel na 75 65 na 65

Saipa na 25 na na na

Saipa Diesel na na na na 30

Shahab Khodro na na na 40 na

Zamyad 45 na 35 60 5

na = not available. Sources: Ministry of Industry and Mines; BMI

In the commercial vehicles sector, there has been a consolidation of production under Iran’s automotive giants, Saipa and IKCO. For example, Saipa has taken control of van, truck and bus producer Zamyad and truck manufacturer Kaveh Khodro, while IKCO Diesel was created in 1999 after IKCO acquired the Khavar Industrial Group. The concentration of ownership has helped improve efficiency and parts procurement.

Government Policy State-owned enterprises have been suffering amid worldwide economic slowdown, but a US$1bn scrappage scheme should help revive the heavy vehicle industry in Iran. The government is targeting to replace 12,813 vehicles with new ones by the end of the current Iranian calendar year, which ends on March 21 2010. Some 8,813 trucks, 1,500 buses and 2,500 minibuses will be replaced as government representatives for the expansion of the public transportation fleet and energy saving received the central bank's confirmation of a US$1bn credit plan. In addition, the oil ministry will also allocate about US$230mn for renewing the vehicle fleet in Iran, from its internal budget.

The government’s priorities for the sector have shifted since the election of President Ahmadinejad in 2005. Ahmadinejad is seen as a nationalist who puts great emphasis on national self-sufficiency and import-substituting industrialisation. Consequently, he is keen to have greater vertical integration in the automotive sector. However, his focus has been primarily on the passenger car segment, which has experienced rapid growth and has attracted foreign investment.

Khodro and Saipa are both to sell about 40% of their stocks to the private sector under the terms of the fourth five-year plan (2005-2010), which was passed by the conservative-dominated parliament in May 2004. This could lead to a further restructuring of the automotive sector, with commercial vehicle producers spun off as separate firms. The election of the conservative Ahmadinejad in 2005 ensured that

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there would be little conflict between the government and parliament over the broad terms of the programme.

The Iranian market is highly protected and imports are effectively prohibited by a high tariff barrier, meaning that commercial vehicle sales are dictated by domestic supply. In 1995-2004, automotive imports were not permitted entry, but in August 2004 the Customs Administration began allowing imports, with tariffs at 130%. This makes foreign-branded commercial vehicles prohibitively expensive and few find their way onto the Iranian market, although a black market does exist. For example, the Iranian government has accused Saudi Arabia’s truck manufacturer, National Automobile Industry (NAI), of the illegal importation of 270 Mercedes-Benz trucks in 2003 using forged documents. The HCV segment is also protected from imports by non-tariff barriers. Trucks are listed as having a dual civilian and military use. As such, private sales of imported foreign trucks are effectively prohibited, due to their potential military application against the government.

Foreign Investment The only entry foreign brands have in Iran is through JVs with Iranian manufacturers. However, investment has been concentrated in the passenger car sector, with commercial vehicle manufacturers largely relying on production licences for foreign models.

Nevertheless, there is a growing interest in the segment from foreign investors. The Foreign Investment Promotion and Protection Law, introduced in July 2002, opened the door to foreigners to own up to 100% of industrial ventures in Iran in an attempt to revive the interest of foreign companies in the country. Given concerns about the Iranian business environment and the insistence of the government to protect the local autos industry, to date such interest has materialised only through JVs with local partners, again, geared towards assembly from imported CKDs. Most interest in the commercial vehicle sector has come from China, with Chinese investment in the automotive sector seen as a sweetener to encourage Iran to grant Chinese oil companies a major stake in the country’s vast oil fields.

In June 2009, Mordovia’s Deputy Economy Minister pushed for the expansion of ties between the Iranian and Russian auto manufacturers. The minister said the two countries could partner in the areas of truck production, light auto production and train manufacturing. The bus sector is a promising area for Iranian automotive exports. In May 2007, IKCO Diesel signed a deal with the government of Turkmenistan to supply 265 buses. The contract, including the supply of spare parts, is worth US$42mn. Turkmenistan’s officials said that they would order 1,000 more vehicles if IKCO Diesel meets its delivery deadlines. Iran planned to start exporting buses to Russia in 2008. Iranian buses have an advantage over European- manufactured buses due to lower production costs.

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Suppliers

The main markets for Iranian manufactured parts are the UAE, Saudi Arabia, Russia, France, and Italy. Iranian parts manufacturers are shrugging off the possibility of economic sanctions against Iran and are making a concerted attempt to enter the European market. In November 2006, IKCO’s managing director stated that the company intended to export US$10bn of automotive parts within the next 10 years. He also indicated that the firm was seeking to expand parts production outside Iran, in countries such as Syria, in the same way it has expanded its car production.

In August 2009, according to the Metal Bulletin, Iran's Chaharmahal Bakhtiari Auto Sheet announced that its galvanizing line would open within the next few months. The galvanizing line, which has a 400,000 tonnes per year design capacity, is the first dedicated producer of galvanized steel for the auto industry in Iran. The project is presently 97% completed at a cost of US$200mn with around EUR98mn in financing from French investment bank Société Générale. The mill will be fed by cold rolled coil from the Mobarakeh Steel plant 45km away. IKCO owns a 23% stake in the plant, while Saipa holds a 22% share. State holding concern Imidro has a 45% share and the pension fund of Imidro subsidiary National Iranian Steel owns 10%. According to the report, at this time, almost all car body sheet is imported from France, Korea and Japan.

Automotive suppliers are convinced that the low cost of their products will win favour with European autos majors seeking to boost profit margins in an increasingly competitive market. New JVs between Iranian and European automotive firms are helping to increase Iran’s technical capabilities, leading to a gradual improvement in quality. Even so, the uncertainties lingering over Iran’s international standing continue to cast a pall over Iranian automotive parts manufacturers. The tension between the need for foreign capital and technology in the automotive industry and the desire to protect Iranian parts manufacturers from foreign competition is a major theme in debates surrounding the development of the sector.

Regulation

While tariffs on imported autos have eased somewhat in recent years, they still remain high at 90%. That’s down from the duty levels imposed on foreign-manufactured cars in 2003, the year that Iran lifted its ban on imported vehicles, but the heavy tariffs slapped on foreign-produced vehicles still pose a major barrier to a competitive market in Iran.

In mid-April 2003, Ali Mohammad Namazi, a member of the Majlis Education and Research Committee, said publicly that if the import of CBUs was to be allowed, ‘the importers should scrap two dilapidated vehicles for each imported foreign car’. Soon afterwards, the Secretary for Traffic Control of Kish Island, Maghsoud As’adi Samani, announced a new traffic regulation scheme, banning the use of vehicles over

Iran Autos Report Q1 2010

10 years old. Owners of such cars would have five years to replace their vehicles with new ones and enjoy exemption from custom duties.

The move, however, was stalled by early September 2003, when top government officials openly argued that an influx of foreign vehicles, however small, would significantly reduce employment in Iran’s auto industry (estimated to be a combined 400,000 people at IKCO and Saipa). Commerce Minister Mohammad Shariatmadari commented that ‘[until] we are confident that the domestic conditions for car imports are ready, we will not allow foreign car imports.’ He added that ‘more than 15,000 workshops and factories are engaged in car part manufacturing, and their preservation is the government’s duty, so we will not jeopardise their existence by importing foreign-made cars.’ He also called for technology transfers as a further condition to granting import licences.

The government’s position was confirmed in November 2004, when Minister of Commerce Mohammad Shariatmadari said that automobile imports by businesses registered in Iran are permitted with a 130% import tariff rate, reduced to 125% in 2005-2006. In the 2005-2006 budget, presented in March 2005, the government pledged to reduce the import tariff to a maximum 100% for passenger cars and 20% for buses. Officials in Iran’s autos industry warned that the tariff cut would result in a 30% loss in domestic car output with a corresponding loss of 30% of the workforce in the autos sector. The claims were exaggerated and intended to politicise the issue and win over the support of nationalist hardline conservatives, who are against car imports, ahead of the 2005 presidential election. In fact, IKCO had previously claimed that it could easily compete with foreign imports, with the company’s deputy managing director, Reza Raei, stating that ‘no imported car could compete with our price ranges’. Nevertheless, Shriatmadari has warned that Iran would slap extra duties on foreign car manufacturers engaged in unfair trading practices, such as price dumping.

This has not satisfied managers of Iran’s autos sector who wish to see domestic production protected and developed. Saipa Automobile Group’s managing director, Ahmad Ghalebani, warned in July 2006 that the trend towards assembling imported CKDs was undermining the domestic automotive sector, reducing employment opportunities and lowering the amount of value added. He claimed that cuts in import tariffs, from 170% in 2003 to 100% in 2005 for vehicles and from 68% to 60% for parts, were harming the national autos manufacturing sector, which found it hard to compete. Ghalebani said that Saipa aimed to utilise domestic skills and joint platforms to reduce reliance on imports and increase national foreign- exchange reserves. He also urged the government to reduce tariffs gradually to allow the domestic industry time to adapt and gain competitiveness.

The government’s increasingly protectionist stance has not stopped it from considering internal market liberalisation. In October 2005, the Ministry of Industries and Mines announced that IKCO will not be allowed to make use of the Foreign Exchange Reserve Fund’s financial facilities until it transfers 40% of its shares to private ownership. The government has advised IKCO to spin off and privatise its

Iran Autos Report Q1 2010

subsidiaries and undergo privatisation. It believes that privatisation would strengthen the company’s automotive parts subsidiaries. Presently, Iran’s domestic vehicle production comprises 64 models throughout all segments. Eight companies, comprising 95% of the domestic market, are listed on the Tehran Stock Exchange. The national autos part manufacturing industry produces some 95 % of the components for Peugeot 405 and Samand models, 60% of the parts for Peugeot 206 and 100% of the Pride and the phased-out Paykan. However, after-sales services remain poor due to the low quality of locally produced parts.

A crucial factor behind the development of the Iranian autos industry is the steady increase in the involvement of foreign original equipment manufacture (OEM). For example, PSA Peugeot Citroën, Kia Motors, Proton of Malaysia, Nissan Motor, and Mazda Motor from Japan, as well as GAZ from Russia, have entered the Iranian market through local companies. Recently, China’s Chery Automobile, SsangYong Motor from South Korea, and Tata Motors from India have announced plans to open assembly lines through JVs in the immediate future. In general terms, the Japanese have focused their market presence on high-end, low-volume vehicles, much against local hopes for the build-up of stronger links (since the Japanese are seen as ‘ideal partners’ for Iranian manufacturers). In the words of Amir Albadvi, an executive of IKCO, ‘we want Japanese partners rather than European ones because the demand structure in Iran is more similar to Japan’s and we want to learn about productivity and technical skills.’

Iran Autos Report Q1 2010

Company Monitor

Regional Case Study: Nissan Motor

The first Nissan Motor cars were sold in the Middle East in 1957, but it was not until 1994 that the Japanese firm set up its regional HQ in Dubai. Since then, its share of the market has grown and is set to challenge its Japanese rival Toyota for pole position. In 2004, Nissan captured around 21% of the rapidly growing UAE market, compared with 39% for Toyota Motor. In Africa, its strongest production and sales base is South Africa, where it took over the operations of a local Nissan manufacturer in 2001. However, it has failed to keep pace with the overall market, with its share of the passenger car market falling since the mid-1990s. Plans are under way for a large manufacturing base in Morocco, which the company will share with its strategic partner Renault, providing the carmaker’s largest assembly plant in the MEA region

Production

Nissan’s global production in 2007 rose by 6.2% y-o-y to 3.43mn units. Production is gradually moving its way out of Japan as the domestic market slackens and foreign sales accelerate. Production fell by 4.5% y-o-y to 1.18mn units in the country, while overseas production reached a record of 2.25mn, up 12.9% y- o-y. The shift in manufacturing operations is set to benefit its plants in the MEA.

Nissan cars are produced in four MEA Nissan Motor – Sales countries: Egypt, Iran, Kenya and South Africa. It began manufacturing operations 2008

in Egypt in 1997 through locally owned 1,200,000 partnership Modern Motors Nissan Motor 1,000,000 Company. In June 2004, Nissan took full 800,000 600,000 control of the assembly operations in 6th 400,000 October Industrial City in a US$60mn 200,000 buyout and investment scheme. 0 Following a refurbishment, the plant Japan reopened in April 2005 with capacity of W Europe N America Africa 17,000 annual units. Asia Pacific Latin America Latin CEurope and E Middle East and Middle Source: Nissan Motor Iran began manufacturing Nissan models in 1974, when Zamyad, now part of Saipa, won a license from the company to assemble a number of its pick-up models. It now produces the Z24 model for the company. In 1985, Saipa started production of the Nissan Junior light utility vehicles (LUVs). Following its merger with Saipa in 1999, Pars Khodro introduced the Nissan Safari AT to the Iranian market. In 2000, an agreement was signed with Nissan to

Iran Autos Report Q1 2010

assemble the Maxima passenger car line, including in the deal 15% local parts integration on launch. The latest addition to the line-up is the Roniz SUV, production of which started in 2002. The chief problem facing Nissan in Iran is the dominance of state-owned manufacturers, which are given political priority and protection from competition. Nissan models manufactured in Iran contain less local content than competitors. Additionally, although models such as the Maxima have received initial public enthusiasm, they are unable to maintain their level of sales in a country where price, rather than quality, is the determinant factor for consumers. Consequently, the group only controls a small proportion of an otherwise burgeoning market

Nissan cars have been sold in South Nissan Motor – Change In Sales, 2008 Africa since the early 1960s. Nissan South Africa, the country’s local (% chg, y-o-y)

manufacturer and distributor, was owned 25% by Automakers, in which Nissan was a 20% 15% minority shareholder until it acquired a 10% 37% share from financiers Sanlam 5% Group in 2000. This gave it a majority 0% -5% shareholding in Automakers and enabled -10% a full takeover. The Nissan assembly -15% plant was established in 1963, with an Asia Japan Latin Africa Pacific Europe ME and ME C and E

engine unit established in 1973. In 2001, America W Europe N America Worldwide Automakers changed its name to Nissan Source: Nissan Motor South Africa, becoming a subsidiary of Nissan Motors. Since then, Nissan South Africa has underpinned the firm’s operations in southern Africa. In 2004, Nissan South Africa announced that it had achieved 65% local content in its vehicles. Nissan’s assembly plant exports cars to Europe, Singapore, Australia and New Zealand. In Kenya, the Kenya Vehicles Manufacturers plant produces a negligible amount of Nissan vans under licence.

The South African plant is concentrating on the export market, producing the Tiida hatchback, Tiida sedan, Grand Livina, Livina and Livina X-Gear as well as the X-Trail SUV models. In July 2008, the Renault-Nissan Alliance confirmed the launch of a new manufacturing project in South Africa, which would see a new Nissan half-tonne pick-up, the NP200, and the Renault Sandero produced at Nissan’s Rosslyn plant. Production of the NP200, both models based on the X90 platform, started in Q308. Production of the Renault Sandero was due to commence in 2009. The Renault-Nissan Alliance said it would invest ZAR1bn (EUR80mn) in the project. Capacity was planned to increase to 68,000 annual units this year as a result of the investment, although the economic downturn has put this target on ice as initial output was targeted for the domestic market, which is currently in freefall. In October, Nissan South Africa set out aims to nearly triple production at its Tshwane plant to 100,000 units over the next five years, of which 65% would be exported. This would enable the plant to import a percentage of its

Iran Autos Report Q1 2010

components duty-free under the Automotive Production and Development Programme (APDP), which is set to replace the current Motor Industry Development Programme (MIDP) from 2013.

In March, Nissan South Africa announced that it intended to increase local content on its locally produced cars and pick-ups from 40% to 45% in value terms, and then to 60% over the next two-three years. The company said it would investigate the substitution of high-volume parts, with the associated high shipping costs from Japan, and high-value parts, which have a high duty, with local parts. The main limitation, according to Nissan, is the cost competitiveness of local suppliers compared with Thai, Eastern European and South American suppliers. Even after the weakening of the South African rand, local parts are 20-30% more expensive than those from Thailand. Before depreciation, they were 40% more expensive. The value for local parts suppliers of increasing localisation to 60% is around ZAR500mn, according to the company.

Meanwhile, it is increasing its manufacturing base elsewhere in Africa. In January 2008, Nissan and Renault signed an agreement with the government to build a EUR600mn manufacturing complex, including an assembly plant, near Tangiers, Morocco, in the Tangiers Mediterranean Special Economic Zone. However, by Q109, Renault-Nissan was finding it difficult to finance the construction of the complex amid the global economic crisis. The alliance is now looking to raise funds from alternative sources. It has submitted a case for funding to the European Investment Bank (EIB). However, the EIB is limited to financing only 50% of any project, and even if it were to agree to maximum financing of the project, Renault-Nissan will have to find financial backing for the remainder. If completed, the site will have a manufacturing capacity of 400,000 vehicles annually (200,000 vehicles from 2010), providing the Renault-Nissan Alliance with one of the largest manufacturing complexes in the Mediterranean. The site will extend Renault’s manufacturing system for the production of competitive vehicles derived from the Logan platform and Nissan’s system for the production of new-generation LCVs.

Table: Nissan MEA Production Facilities

Share of local Country Subsidiary Start of operations Output, 2006-2007 production Egypt Nissan Motor Egypt 2005 9,172 8.8% Iran Pars Khodro 1987 5,396 0.5% Kenya Vehicle Kenya Manufacturers 1978 220 3.8% South Africa Nissan South Africa 1963 45,728 7.8%

Source: World Steel Association

Iran Autos Report Q1 2010

Sales

Table: Nissan MEA Distributors

Share of local Country Marketing company Start of operations market* Algeria Nissan Algerie 1991 8.0% Bahrain Y.K. Almoayyed & Sons 1941 8.0% Egypt Nissan Marketing & Distribution Egypt 2005 4.0% Iran Pars Khodro 1967 0.5% Kenya D.T. Dobbie 1949 12.0% Kuwait Abdulmohsen Abdulaziz Al-Babtain 1956 8.5% Saudi Arabia Alhamrani United 1953 9.9% South Africa Nissan Motor South Africa 1963 7.9% Turkey Nissan Otomotiv 1993 1.6% Al Masaood Automobiles (Abu Dhabi), UAE Arabian Automobiles (Dubai) 1968, 1929 12%

Source: BMI

Nissan is seeking to diversify its markets in order to sustain global sales growth and reduce dependence on the domestic market. In Japan in 2007, its vehicle registrations, including mini-vehicles, fell by 6.0% y-o-y to 720,973 units, leading to its domestic market share falling 0.1 percentage points (pps) to 13.5%. The MEA offers the carmaker the chance to offset this decline.

Nissan Middle East anticipates exceptional growth, with sales more than doubling to over 400,000 units by FY12 from 198,000 in FY07. If achieved, the group will have smashed targets and easily outstripped regional average sales growth rates, helping raise its market share. If these trends continue, within five years it will be neck-and-neck with Toyota in the Gulf autos market. The company aims to achieve annual sales of 160,000 units in the GCC region by 2012, aiming for a share of 25% in the four markets covered by Nissan Gulf. This will require the right mix in its model line-up, something BMI is confident it will achieve with the trend towards smaller and more fuel-efficient cars.

As well as targeting the right segments, Nissan has also benefited from a presence in the region’s largest markets. Nissan is aiming to expand in the GCC, with a particular emphasis on Saudi Arabia, where the company has a share of almost 10%, representing half of its total GCC sales. GCC sales have grown by over 200% in less than two decades, giving the manufacturer an estimated 15% share of the regional market. Moreover, it has leveraged the growth of the premium segment in the Middle East through its Infiniti brand. In the UAE, its distributors launched the new G35 sedan to add to the already available

Iran Autos Report Q1 2010

M45, QX56, and FX35. Infiniti is aimed at being the best-selling Japanese luxury brand in Dubai and the northern emirates by end-2009.

Key to Nissan’s success in the Gulf will be its performance in certain key sectors, particularly SUVs and luxury cars. SUVs are popular in the Middle East, where families are often large, while the rapid rise in disposable income has fuelled strong growth in the luxury segment. Nissan hopes to achieve its goal of becoming the leading brand with the largest SUV line-up in the area. This has been assisted by new model launches, such as the Altima sedan and coupe, the Xterra, Qashqai, and Navara SUVs, while the 4x4 Nissan Patrol is enduringly popular due to its off-road durability. The Middle East’s US$2bn luxury market is also a target. The Infiniti represents its luxury range, which has performed well in the Gulf region. In 2005-2008, five new models or model changes of the brand were introduced, bringing the total range available to seven models in 2008.

In October, Nissan joined forces with Al Dahana of Saudi Arabia to form a new JV dedicated to Nissan’s business in the GCC. Nissan Gulf FZCO will take responsibility for the group’s sales and marketing strategies in Saudi Arabia, Abu Dhabi, Kuwait and Bahrain, while also introducing a new financing service. The expansion is in line with the firm’s targets for the region under the Nissan GT 2012 plan. According to Khaled al-Juffali, chairman of Nissan Gulf FZCO, the five-year strategy includes ‘aggressive targets in customer growth, revenue increases and cost reductions’. A new area of focus will be automotive financial services, which is a growing business in the Middle East. Juffali said that the company will offer financing and insurance products developed specifically for the local market.

Iran Autos Report Q1 2010

Company Profiles

Iran Khodro Company (IKCO)

Overview Key Statistics IKCO (formerly called Iran National before the Islamic revolution) Year established: 1963 was established 1963 and is Iran’s largest industrial conglomerate. Sales revenue, 2008-2009: US$10bn When production of the Hillman Hunter ceased in the UK in 1979, Net profit, 2007: US$534mn Peugeot Citroën, by then in control of Chrysler’s former operations in Europe, began negotiations to sell the rights of the brand and the manufacturing plant to IKCO. The agreement was sealed in 1985 and the production line at Linwood, Scotland, was dismantled and shipped to Iran. As part of the deal, Peugeot Citroën also sold 65,000 engines to Iran.

The Paykan was scheduled for replacement by a more advanced model in 1978, but the Islamic revolution changed those plans radically. As a result, the Paykan continued to be IKCO’s flagship passenger car until production finally ceased in March 2005 with the Samand taking on the role.

The company’s product line is presently complemented by the Peugeot 405 model in a number of variants and the 206, launched in 1990 and 2001, respectively. The former has local parts integration close to 80%, while the 206 is exported by Peugeot in CKD form. An indigenous version of the 405, the model RD, a 405 body fitted with the Paykan engine and drive-shaft, is also being assembled. The range was further enhanced in 1997 by the Pars model, a revamped 405, and later in 2001 by the Samand, another local project, also known as the national car or X7, which uses the 405 Powertrain.

In 1992, IKCO bought from VW Argentina machinery to build the Avenger 1.6-litre engines, which powered the Argentine version of the Avenger as well as VW’s 1,600 and 1,800 models, up to 1990.

IKCO separated its commercial vehicle division from the passenger car unit, creating IKCO Diesel. The unit, formerly Khavar Industrial Group, began its activities in 1959 assembling Mercedes-Benz trucks under licence and is now in charge of the production of IKCO’s heavy industrial vehicles, trucks, buses, and minibuses, as well as the Paykan light utility vehicle (LUV). In 2002, Russia’s GAZ exported a batch of 500 CKD-kits of the GAZel truck model in seven variants for assembly by the unit, thus resuming a co-operation

Iran Autos Report Q1 2010

project which included the construction of an assembly line in Tehran’s suburbs, which was suspended in late 1999.

IKCO began production of three new Samand models for the Iranian market in April 2005. Replacing the Paykan, which ceased production at end-March, the Samand is aimed at the mass market and for export to other Middle Eastern states.

In 2006, the company launched a new-generation Samand, the Peugeot 307 sedan, a 4x4 JV car with Suzuki Motor, and the New Paykan budget-car based on the Peugeot 206 platform. However, controversy continues to linger over the production of the Renault Logan, codenamed L-90, which the government of President Ahmadinejad fears could undermine the success of the New Paykan, intended to be a ‘national car’ designed and produced in Iran.

IKCOis working intensively to expand its foreign markets, which bring in much-needed hard currency. It opened production lines in Azerbaijan, Belarus and Syria in 2006. Production lines are also expected in China, Venezuela and Senegal, with India and Bangladesh also mooted as potential production sites.

IKCO has concentrated on expanding its own ranges, as opposed to those it produces under license to other manufacturers. The latest models unveiled include a new version of the Samand, a wheelchair-accessible Samand, the R90 station wagon, and a next- generation minivan powered by LNG. In April 2009, the automaker revealed a brand new, domestically produced model, the Runna.

In 2009, the company received a $1bn financial rescue package from the government given the company’s rising debts.

Strategy News

In Q409, IKCO received a licence from Renault to produce the Renault L90 (Tondar) Sport model commercially. In line with its goal of producing 200,000 units annually, the carmaker also signed agreements with Peugeot in H209 to manufacture the Peugeot 207i, 206, 207 and Pars models at IKCO facilities outside Iran.

IKCO completed the second phase of its plant in Syria in May 2009 and was set to begin exporting of the Samand. The US$60mn expansion project takes the facility’s annual production capacity from 10,000 to a potential 30,000 units, thus enabling the firm to begin regional exports of its sedan.

IKCO got a new leader in April 2009. Iran replaced managing director Manouchehr Manteghi, who has helmed the automaker for

Iran Autos Report Q1 2010

six years, with Javad Najmuddin, Reuters has reported. The wire agency, citing local media, said the replacement of Manteghi was related to the decline in IKCO’s market share and unprofitable attempt to develop a foothold outside of Iran.

Results

IKCO manufactured 353,000 passenger cars from March 20 2009 to October 2009, representing a 12% y-o-y rise.

Iranian news outlets have reported that IKCO posted sales of US$10bn in the 2008-09 year and exported 42,000 vehicles during that period. Managing director Manteghi reportedly has said that IKCO posted a profit but has not disclosed specific figures.

Iran Autos Report Q1 2010

Societe Annonyme Iranienne de Production Automobile (Saipa)

Overview Key Statistics Saipa was founded in 1966 as the Citroën Production Association, Year established: 1966 and in 1968 began to manufacture the Citroën Dyane model, a replacement version of the popular 2CV. In 1977, Saipa introduced the Renault 5 model in two- and four-door variants. By 1985, Saipa also produced the Nissan Junior LUV equipped with a 2.0-litre engine, complemented in 1990 by a 2.4-litre model. This was followed, in 1993, by the Renault 21 mid-range passenger car.

Some years later, Saipa concluded an agreement with Kia Motors to manufacture the Pride in four models, and in 1999 sealed a deal with PSA Peugeot Citroën to produce the Xantia. In 2002, an indigenous redesign of the Pride was launched, known as the 141 model. By that time, local parts integration reached 85% for the Junior LUV and 81% for the Pride. In the 1990s, Saipa merged with Iran Kaveh, since then renamed Saipa Diesel, and Zamyad, and in 1999 acquired a majority stake in Pars Khodro.

The Iranian government has control over the company through IDRO, an agency of the Ministry of Industry and Mines. In 1998, Saipa listed on the Tehran Stock Exchange as a first step towards privatisation. The majority 14.3% stake in private hands belongs to the Bahman Group, which is also engaged in autos manufacturing, under licence from Mazda, through Bahman Auto.

Exports represent a small stream of income. Azerbaijan, Iraq, Egypt, Syria, and Sudan were the group’s main export destinations. The company’s commercial vehicle subsidiary Zamyad is one of Iran’s largest truck producers. The Saipa Group is Iran’s largest vehicle manufacturer. Its most popular passenger car is the Pride, which was developed by South Korea’s Kia.

Saipa has also opened a new car assembly line in Homs, Syria, where the Saipa 132 model will be manufactured under the name Emesa. The total investment for the project was US$46mn, of which 85% was contributed by Saipa and the remaining 15% by a private company, Hamshoo. Results

In the Iranian year ended March 31 2009, Saipa increased its sales 18% y-o-y to become Iran’s largest automaker. Saipa claims it has achieved success by expanding into new export markets and by

Iran Autos Report Q1 2010

improving the competitiveness and quality of its products.

According to the IDRO, Saipa units Pars Khodro and Zamyad manufactured 514,881 cars and vans, in the 10-month period starting March 20 2008, up 18% y-o-y.

Iran Autos Report Q1 2010

Pars Khodro

Overview Key Statistics Pars Khodro was the first company to open a vehicle assembly line Year established: 1967 in Iran and was renamed Iran General Motors in 1972, when it started production of the Opel 2500 and 2800 models. Focus shifted in 1976, after a brief period when the launch of a local version of the Chevrolet II was attempted, to the assembly of Buick and Cadillac cars, as well as the Nova model from Chevrolet, all under licence from GM. Iran was the only country outside the US building Cadillacs at the time.

In 1997, the firm took over the Renault 5 assembly line from Saipa to produce a local derivative branded the Sepand while continuing to manufacture Jeeps, currently a CJ-4 known as the Sahra. Following the 1999 merger with Saipa, Pars Khodro introduced the Nissan Safari AT vehicle in the Iranian market. In 2000, an agreement was signed with Nissan to assemble the Maxima passenger car line, including in the deal 15% local parts integration on launch. The latest addition to the line-up is also a Nissan, the Roniz SUV, production of which started in 2002.

Iran Autos Report Q1 2010

IKCO Diesel

IKCO Diesel Company (IKDC) was formed in 1999 after IKCO Local Statistics bought the Khavar Industrial Group. IKDC manufactures airport Year established: 1999 buses, double-decker Neoplan buses, as well as C457 intercity and Annual production capacity: 26,000 CBUs O457 city models. Alongside the production of buses, the company manufactures minibuses, including the 319, 309 and 508 models as well as the Hyundai Chorus.

Its annual production capacity is 15,000 trucks, 7,000 minibuses and 4,000 buses.

IKDC started production of Chinese truck models in 2006-2007, following an agreement with China National Heavy Duty Truck (CNHTC). An IKDC official said that 10,000 heavy trucks weighing 33 tonnes each will be produced in the first phase of the agreement, although he did not elaborate on the time-span or the nature of subsequent phases. Each truck costs around IRR600mn (US$65,000).

Iran Autos Report Q1 2010

Saipa Diesel

Saipa Diesel is Iran’s second largest commercial vehicle Key Statistics manufacturer, 79.3% owned by Saipa Automobile Manufacturing Year established: 1963 Company. It began operations in 1963 under an agreement with the Employees: 1,727 (2008-2009) US’ Mack Trucks, but the licence came to an end following the Sales volume (2008-2009): 10,667 units revolution of 1979. It signed a licence agreement to produce Volvo trucks in 1985, which revived the company’s fortunes after years of uncertainty. It has since signed an agreement with Renault Trucks. Among its subsidiaries are Iran Kaveh Saipa, which manufactures trailers and truck bodies, and Kavek Khodro Saipa, a parts and components supplier. As of 2005, Saipa Diesel had an annual HCV manufacturing capacity of 15,000 units and was working at over 90% capacity.

Saipa Diesel is taking advantage of China’s warm relations with the Iranian government to increase its production levels. In November 2005, Saipa Diesel signed an agreement worth US$30mn with China’s Youtang for the supply of 1,000 buses to Iran from May 2006. More than half the buses were to be shipped to Iran as CKDs. The deal followed a US$150mn agreement between the two sides in August 2005, which involved the purchase of several thousand heavy vehicles, the transfer of technology and the setting up of heavy-vehicle assembly-lines. However, the move could prove controversial, as the Iranian government has insisted on greater self-sufficiency in automotive production, with utilisation of local parts and components producers.

In the 2008-2009 Iranian year, Saipa Diesel produced around 10,667 units, according to company resources.

The company exported its first trucks to South Africa in 2009. Models that were exported included the FM, FH440, and FM 6x4 trucks. The company plans to increase truck exports to Angola in the near future. Iraq remains one of the country’s main target markets with exports to Iraq totalling USD8mnn in 2008. New export markets for the company include Algeria, Ukraine, Yemen, Turkmenistan, and Azerbaijan.

Iran Autos Report Q1 2010

Zamyad

Zamyad, now part of Saipa, was established in 1963 to import and Key Statistics assemble LCVs and HCVs under licence from Volvo Trucks & Buses. In Year established: 1963 1972, Zamyad won a licence from Nissan to assemble a number of its Estimated turnover, FY07: US$350mn pick-up models and now produces the Z24 model, as well as manufacturing Volvo trucks. In 1981-1988, Zamyad produced vehicles, particularly ambulances, for Iran’s war against Iraq. In 1988, Zamyad began producing Nissan Patrol and Junior pick-ups in large quantities. Since 1991, Zamyad has been producing Iveco trucks from CKDs and the company also obtained a licence to produce Iveco minibuses. In 1994, the production of Nissan models was transferred to Saipa, but returned in 1998.

Zamyad has begun manufacturing the Mercedes-Benz Z24F truck and the new LX pick-up, which is based on the Z24F platform and designed in co-operation with a Chinese automotive firm. The company produces 60% of Iran’s bus output, 45% of pick-up output, 35% of minibuses and 5% of trucks.

Iran Autos Report Q1 2010

Country Snapshot: Iran Demographic Data

Section 1: Population

Population By Age, 2005 (mn) Population By Age, 2005:2030 (mn, total)

70-74 75+

60-64 60-64 50-54 40-44 45-49

30-34 30-34 20-24 15-19 10-14

0-4 0-4 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 -10.0 -5.0 0.0 5.0 10.0 Male Female 2030 2005

Source: UN Population Division

Demographic Indicators, 2005-2030

2005 2010f 2020f 2030f

Dependent population, % of total 31.3 30.4 31.0 28.9

Dependent population, total, ‘000 21,133 21,985 26,185 26,373

Active population, % of total 68.6 69.5 68.9 71

Active population, total, ‘000 46,336 50,311 58,060 64,778

Youth population*, % of total 26.6 25.8 25.2 20.4

Youth population*, total, ‘000 17,948 18,658 21,283 18,611

Pensionable population, % of total 4.7 4.6 5.8 8.5

Pensionable population, total, ‘000 3,185 3,327 4,902 7,762

f = forecast, * under 15. Source: UN Population Division

Iran Autos Report Q1 2010

Rural/Urban Breakdown, 2005-2030

2005 2010f 2020f 2030f

Urban population, % of total 68.1 71.2 74.0 77.9

Rural population, % of total 31.9 28.8 26.0 22.1

Urban population, total, ‘000 47,315 52,891 62,376 70,972

Rural population, total, ‘000 22,200 21,392 21,868 20,183

Total population, ‘000 69,515 74,283 84,244 91,155

f = forecast. Source: UN Population Division

Section 2: Education and Healthcare

Education, 2002-2005

2002-2003 2004-2005

Gross enrolment, primary 103 111

Gross enrolment, secondary 82 81

Gross enrolment, tertiary 22 24

Adult literacy, male, % na 83.5

Adult literacy, female, % na 70.4

Gross enrolment is the number of pupils enrolled in a given level of education regardless of age, expressed as a percentage of the population in the theoretical age group for that level of education. na = not available. Source: United Nations Educational, Scientific and Cultural Organisation

Vital Statistics, 2005-2030

2005 2010f 2020f 2030f

Life expectancy at birth, males (years) 68.8 70.1 71.6 73.4

Life expectancy at birth, females (years) 71.7 73.4 75.3 77.4

Life expectancy estimated at 2005, f = forecast. Source: United Nations Educational, Scientific and Cultural Organisation

Iran Autos Report Q1 2010

Section 3: Labour Market And Spending Power

Employment Indicators, 1996-2005

1996 1997 1998 1999 2000 2005

Economically active population, ‘000 16,027 na na na na 22,317

– % of total population 25.3 na na na na 32.1

Employment, ‘000 14,572 na na na na 19,760

– male 12,806 na na na na 15,959

– female 1,765 na na na na 3,801

– female, % of total 12.1 na na na na 19.2

Total employment, % of labour force 90.9 na na na na 88.5

Unemployment, ‘000 na na na na na 2,556

– male na na na na na 1,780

– female na na na na na 776

– unemployment rate, % na na na na na 11.5

na = not available. Source: International Labour Organisation

Iran Autos Report Q1 2010

Consumer Expenditure, 2000-2012 (US$)

2000 2007 2008e 2009f 2010f 2012f

Consumer expenditure per capita 2,362 2,162 2,658 3,224 3,818 5,202

Poorest 20%, expenditure per capita 602 551 678 822 974 1,327

Richest 20%, expenditure per capita 5,894 5,394 6,631 8,043 9,526 12,979

Richest 10%, expenditure per capita 7,961 7,286 8,957 10,864 12,866 17,531

Middle 60%, expenditure per capita 1,772 1,622 1,993 2,418 2,863 3,902

Purchasing power parity

Consumer expenditure per capita 2,669 4,948 5,694 na na na

Poorest 20%, expenditure per capita 681 1,262 1,452 na na na

Richest 20%, expenditure per capita 6,660 12,344 14,207 na na na

Richest 10%, expenditure per capita 8,996 16,673 19,190 na na na

Middle 60%, expenditure per capita 2,002 3,711 4,271 na na na

e/f = estimate/forecast, na = not available. Sources: World Bank, country data, BMI

Average Annual Manufacturing Wages, 2000-2012

2000 2006 2007 2008e 2009f 2010f 2012f

Local currency 10,410,312 24,342,505 29,240,218 35,708,738 42,178,448 48,975,926 64,895,361

Wage growth, % y-o-y 24.1 13.8 20.1 22.1 18.1 16.1 14.1

US$ 5,900 2,654 3,170 3,767 4,312 4,871 6,159

e/f = estimate/forecast. Sources: International Labour Organisation, BMI

Iran Autos Report Q1 2010

BMI Methodology

How We Generate Our Forecasting Model

BMI’s industry forecasts are generated using the best-practice techniques of time-series and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined. BMI mainly uses OLS estimators, and in order to avoid relying on subjective views and encourage the use of objective views, opts for a ‘general-to-specific’ method. BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods of ‘industry shock’, for example a deep industry recession, dummy variables are used to determine the level of impact.

Effective forecasting depends on appropriately-selected regression models. BMI selects the best model according to various criteria and tests, including, but not exclusive to:

R2 tests explanatory power; Adjusted R2 takes degree of freedom into account;

Testing the directional movement and magnitude of coefficients;

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); and,

Assessing all results to alleviate issues related to auto-correlation and multi-co-linearity.

BMI uses the selected best model to perform forecasting.

It must be remembered that human intervention plays a necessary and desirable role in all of BMI’s industry forecasting. Experience, expertise and knowledge of industry data and trends ensures that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not.

Within the Automotive industry, this intervention might include, but is not exclusive to: significant company expansion plans; new product development that might influence pricing levels; dramatic changes in local production levels; product taxation; the regulatory environment and specific areas of legislation; changes in lifestyles and general societal trends; the formation of bilateral and multilateral trading agreements and negotiations; political factors, including trade; and the development of the industry in neighbouring markets that are potential competitors for foreign direct investment.

Iran Autos Report Q1 2010

Example of Vehicle Sales Model:

(Vehicle Sales)t = β0 + β1*(GDP)t + β2*(Population)t + β3*(Inflation)t + β4*(Lending Rate)t + β5* (Foreign

Exchange Rate)t + β6*(Government Expenditure)t + β7*(Vehicle Sales)t-1 + εt

Sources

Aside from government departments and official company reports, we rely on the Organisation Internationale des Constructeurs d’Automobiles (OICA), established thinktanks and institutes, and international and national news agencies.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.