Business Year talks to Javad Najmeddin, President and CEO of Iran Khodro Industrial Group. Javed Najmeddin is President and CEO of Iran’s largest vehicle manufacturer, Iran Khodro Industrial Group. Mr. Najmeddin received a Bachelors degree in industrial engineering from Amir Kabir University, and later obtained an MBA from the Industrial Management Institute in Tehran. He spent much of his career at the Khodro Group, serving in a variety of departments such as Managing Director of the Iran Aut
What is the current production capacity and nominal production of Iran Khodro?
JN: The production capacity of Iran Khodro is around 1 million units per year for passenger cars and light pick-up vehicles. Last year we produced 680,000 passenger cars and light pick-up units. The year before we produced 600,000 units, and for this year we plan to produce 780,000 units.
Do you think the current high demand for cars in Iran will be sustainable, especially after the removal of energy subsidies in near future?
JN: Within the past 10 years, the Iranian market has experienced an rising trend in passenger car demand. In 2009, when all the global manufacturers were suffering from an economic and production downturn, we experienced a 13% increase in production. We forecast that this rising trend will continue in the upcoming years. For 2021, we forecast that demand will increase to 2.3 million units for the local market in terms of passenger car and light pickup vehicles. And precisely because of this, we are actually increasing our position in the global ranks. In 2008, Iran was ranked as the 16th largest car manufacturer in the world, and in 2009 we were the 12th largest manufacturer in the world. We believe that this increasing trend will continue until 2016, while from 2016 onward we will begin to experience flatter demand in the market. There are some factors that may speed up or slow down demand. Among them is fuel price and the removal of subsidies. We believe that this will have a short-term effect, but after that short period the growth trend will return because a vehicle is perceived to be an investment commodity in Iran, and we can maintain this status in the future. On the other hand, there will be factors that will affect demand positively, and the most important of these is the introduction of a vehicle scrappage scheme. As a large part of the Iranian local fleet is made up of older model cars, replacing these vehicles can help compensate for the flatter demand caused by higher energy prices.
Do you have any special plans to replace old vehicles?
JN: Yes, there was a proposal made by the motor vehicle manufacturers and submitted to the Iranian government last year. Iran Khodro is one of the main figures behind this proposal, which outlines for the government how much liquidity is required to perform the scrappage scheme on a yearly basis. The government and the Central Bank of Iran approved it. Based on this proposal, Iran Khodro will be responsible for replacing 200,000 vehicles and Saipa will be responsible for replacing another 200,000 of them within one year. The government has decided on a special loan to be given to the owners of older cars, and these vehicles will be valued as well. So, based on the price, the cars will be purchased, a loan will be given, and within this scheme the owners of older model cars will increase their purchasing power, and we can implement the scheme. This loan will be at least 60% of the car price.
The market share of Iran Khodro is around 50% right now. Are you looking to maintain or increase your market share by 2015?
JN: Our market share from 2008 to 2009 has increased, and we have planned that by 2015 we will achieve a 55% market share. By 2015 our production volume will be around 1.4 million units. We have begun taking advantage of increased demand, and in parallel we have planned to increase our production capacity.
What will be the focus of Iran Khodro’s strategy going forward?
JN: For the past 10 years, our investment has focused on increasing the capacity of production. But for the next 10 years, our investment focus will be on the development of new products. We have already established our production capacity inside Iran, and some of these facilities are still under construction. Our production facility in Tabriz is busy with the production of pickups. In Mashhad, we have another site that produces two Suzuki and Peugeot branded cars and one Iran Khodro branded car. The capacity of this site is 150,000 units per year. The site in Kermanshah will produce light commercial vehicles, and is now under construction. Last month our production site in Mazandaran, in the city of Babol, was opened by the deputy president of Iran, and it will produce luxury cars. There is another site under construction in Shiraz that will produce one Iran Khodro model and two Peugeot models. As Iran Khodro, we are at a certain stage as a car producer. We started with the assembly of cars, and then we increased the localization level of the parts and components. After that, we introduced the Samand project as a national car. With this project, we learned how to design the body and trim of the car. After that, we arrived at the development and design of power train and related components. With this project, we introduced some engines to the market that are now available and are in use in Iran Khodro vehicles. We are now ready to produce our own cars suited to our own needs. In the next phase, we are going to design platforms. The design of national platforms is on Iran Khodro’s agenda.
With the latest investments, Iran Khodro is fast becoming an international company. Where are your production sites abroad and how did you decide to establish these production sites?
JN: In parallel to the local sites, we have established some international sites with regard to the amount of export demand we have received. Some of them are still under construction. One of the largest sites for Iran Khodro is in Syria. It was opened last year with a capacity of 30,000 units per year. We have another site in Venezuela, which was opened in a joint ceremony President Ahmadinejad and President Chávez. In 2009, the production capacity was 25,000 units. We have another large site in Belarus, which is under construction. The capacity will be 30,000 units per year. We have another large site in Senegal. This site will be opened in the first week of November 2010 by high-ranking officials from Iran and Senegal and is set to produce 25,000 units of Iran Khodro-branded cars annually. In all of these production sites we produce Iran Khodro-branded cars, with the exception of in Egypt. In Egypt we have a cooperation agreement with Peugeot’s representatives and produce Peugeot-branded cars.
Does Iran Khodro export cars from Iran to other countries?
JN: Six years ago, we developed plans to export our products to target markets. In 2007, we reached our highest figure, which was around 45,000 units. In 2008 and 2009, due to the global financial crisis, we saw a decrease in exports. However, for 2010 we have planned on 60,000 units for export. We will achieve this export target through two methods. One of them is the direct export of CBUs (completely built units) to export markets, and the other is the export of CKD (completely knocked down) units to our international sites. We believe that we will reach these targets since we will be introducing two new products, and we have already received strong demand for these products. In 2015, we are looking to allocate 15% of our production to exports. One of the hindrances to foreign exports is the regulations and standards that are being introduced in these countries in the coming years. As part of our new product-development investment, we have developed new products in a way that they are able to meet these new standards and regulations.
For these product development plans, which will be the biggest part of your investments in the near future, and which international companies are you working with? Will you continue your relationships with Peugeot and Renault?
JN: We have worked with Peugeot for about 22 years, and Peugeot is one of Iran Khodro’s major partners. It has been about six years that we and the Saipa Company developed a joint, common-platform project with Renault of France (Logan). Based on this, we have introduced the Tondar to the Iranian market. There is another partner, Mercedes-Benz, with which we have been working for about 30 years, specifically in the commercial segment, for buses and trucks. We have another company called Iran Khodro Diesel, which is responsible for the production of Iran Khodro’s commercial vehicles. In Iran Khodro Diesel, we have established a 30,000 unit capacity for the production of commercial vehicles. We have another Japanese company as a partner, Suzuki, with which we have recently started to work. We have plans to develop our cooperation with Suzuki in the coming years.