Rouhani’s Auto Plans

Rouhani’s Auto Plans
Rouhani’s Auto Plans

Iran’s President Hassan Rouhani announced that national automakers, Iran Khodro and SAIPA, should be “completely privatized and [become] competitive”.

President Rouhani made the statement in the conference held on the sidelines of the annual auto show earlier this week, local news wire services reported.

This rational statement outlines part of Rouhani’s broader push to privatize large swaths of the country’s assets and to make them more competitive after reducing heavy import tariffs on foreign cars.

But, what would a fully privatized industry look like and could the president’s plans be the last nail in the coffin of an industry that is artificially buoyed by government subsidies and favorable conditions?

The key to the future plans of the industry can be outlined through his words at the conference, as he sees it: the auto oligopoly has had it too good for too long. They have become complacent in terms of quality and development of future models and engines.

Further, as reported on Press TV’s website, Rouhani said the satisfaction of people is of special importance to the administration.

“To close the doors and to produce cars and impose them on the people and tell them that this is the only thing you can choose is not an acceptable logic,” he said.

This is the first time an Iranian administration has focused on the needs of the car buyer, turning its attention away from the producers’ perspective.

Prior statements emphasized on “the need of the Iranian people to be independent [in auto manufacturing]”.

This has not paid off, as auto manufacturers have languished, though not entirely of their own making, because sanctions also played a part in choking the industry.

 Foreign Deals

Rouhani’s policy can be explained better by the current slew of deals being negotiated at the highest levels.

During his speech, he noted that partnership with external actors need not be the end of local auto development.

“There is a shortcut ... We have to start partnerships with prominent world carmakers. We will reach to the optimum point in technology, protecting the environment, saving energy and safety,” AP quoted the president as saying.

These “partnerships” as he calls them are already known in the public domain, the likes of PSA Peugeot Citroen and Renault are familiar players in the local market, but there involvement could turn to full ownership by the sounds of the premier’s words.

 Likely Scenarios

There are examples of foreign governments pulling out of their respective automotive industries over the past 50 years. In fact, some examples of how to and also how not to privatize may act as good examples for the Rouhani administration in the run up to their pullout of Iran Khodro and SAIPA.

The closest example of how Iran’s auto industry works would be that of France in the 1980s and 1990s, as the French government held significant stakes in Renault. The French government has gently been pulling itself out of the company and has also noted that “government interference in private companies’ matters only hinder its development”.

In 1994, the board at Renault announced plans to sell their company. By 1996 the company was privatized fully, which allowed the company to make wiser decisions in terms of market strategy to develop markets and cut its workforce.

Carlos Ghosn, current CEO of the Renault-Nissan group, was tasked with slimming down antiquated methods of production, allowing the company to reduce its workforce and focus on its core strengths.

Later, the group looked for a partner and Nissan was chosen to develop joint platforms and leverage the cost over a broader base.

 Failure of British Privatization

Britain, once the production hub of an empire, was also seeing its former might questioned with poor quality vehicles and flagging sales.

Faced with cheap, quality imports from mainland Europe and the Far East, British cars looks dated and from another era–case in point would be that of Jaguar’s offerings in the 1980s.

Margaret Thatcher, Britain’s first and only female prime minister, became famous for her joint development of “Reaganomics” or in the case of Britain “Thatchernomics”. She and her Conservative government swept to power after the upheavals of the 1970, which saw London in decline and the country losing cash on every front.

Similar to Iran with sanctions placed on it, Britain was faced with hundreds, sometimes disparate in nature, of nationalized industries. Everything from bookmakers to the national railroad system was under the control of Downing Street and the government. Things had to change, according to Thatcher.

British Leyland, the behemoth similar to Iran Khodro today, was the United Kingdom’s car manufacturing monopoly that gradually gobbled up several car companies facing dire straits in the postwar years.

Faced with this crisis and a newly emergent right-wing, Conservatives decided to lay waste the entire nationalized industries, including auto manufacturing. And British Leyland—the national producer—was in for the chop.

Jaguar, Britain’s premium mark was one of the first to go in 1984 when 99% of the shares were sold to the public and other brands like Land Rover, Austin and MG were sold off to different manufacturers in subsequent years.

It took that brand many years of development to catch up with their German counterparts to eventually be owned today by Tata Motors of India that has invested heavily in both Land Rover and Jaguar’s lineup to keep them up-to-date.

The case of MG Rover was not as successful, after different mergers and acquisitions firstly with BMW and then Phoenix Private Equity to eventually be bought by SAIC of China in 2006. The company lost all credibility in Britain, with the price of fairly new vehicles going for nothing on the secondhand market.

 Way Forward

If Rouhani’s government avoids the mistakes of British Leyland, it may be able to save Iran Khodro.

Firstly, if the British model of slicing the company for its stronger assets is emulated, it is likely that Iran’s joint production lines with foreign car companies like Haima—albeit with a more reasonable pricing—would be the most profitable.

Secondly, there would be a cutting down of the existing model lineup as any new car company would see little profit in constantly reproducing the nearly 13-year-old Samand model any longer, especially in view of the much better offers on the market.

In all, if the Iranian government does actually find a seriously committed commercial partner to deal with the selling off of the national asset, it could be possibly saved as a brand in its own right and build on it further. If it doesn’t, it could be the end of Iran as a serious automotive player.