Although the Iranian autos industry is well protected from external trade, it will not escape the downturn of the global economy, according to research by Business Monitor International (BMI).

BMI says that domestic demand in Iran is likely to fall as the country battles with soaring inflation and unemployment, while its drive to grow its exports is likely to hit some headwinds.

According to the state Industrial Development and Renovation Organisation of Iran (IDRO), affiliated automakers produced just over 1m vehicles in the 10-month period starting on March 20 2008. The Societe Annonyme Iranienne de Production Automobile (Saipa), Pars Khodro and Zamyad manufactured 514,881 cars and vans combined, up by 18% from the period last year.

Meanwhile, Iran Khodro and its Iran Khodro Diesel unit produced 469,964 cars and vans, up by 7% year-on-year (y-oy). Commercial vehicle production, including trucks, buses and minibuses, rose by 38% to 15,159 vehicles, according to the organisation's figures.

Iranian automakers benefit from high tariff protection from foreign produced vehicles, but domestic sales are likely to flag as weaker crude prices slow the economy and in turn depress consumer demand.

BMI forecasts declines in sales and output of 4.1% and 3.5%, respectively, this year.

It says Iran's long-term financial outlook is clouded by the threat of another round of severe economic sanctions. The situation between the US and Iran over its nuclear programme is at a crucial point. The former has joined forces with Europe to put pressure on the latter. In April, US Secretary of State Hillary Clinton raised the possibility of slapping Iran with 'crippling' sanctions if it moved ahead with its nuclear capabilities. For its part, Iran has said that it is ready for dialogue. If it doesn't follow through with those intentions, however, another round of tough sanctions are likely.

In May, Iran Khodro, the nation's largest automaker, completed the second phase of its plant in Syria and was poised to start exporting its Samand sedan.

The US$60mn expansion project has taken 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.

The project goes some way to achieving its goal of increasing its total annual production to 1m units, of which 200,000 will be produced overseas.

Iran Khodro's drive overseas is in line with the IDRO's aim to transform Iran into a major autos exporter in the region by 2013.

Iran is targeting markets such as Pakistan, Iraq and Syria, but companies like Iran Khodro face tough competition from established manufacturers. In Syria, for instance, a number of automakers have recorded significant growth. The 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.

See also:

Iran Autos Report Q3 2009 (download)

IRAN: Iran Khodro launches new small sedan line