Boston, MA -- (SBWIRE) -- 07/29/2013 -- Iranian vehicle production ended calendar year 2012 down 40% on the previous year, and registered a similar decline for the Iranian year ending March 20 2013. Although the latter months of the Iranian year showed signs of improvement with year-on-year (y-o-y) declines shrinking, BMI believes there are still too many risks to manufacturing - not least the shortage of capital and Western sanctions - to expect a full recovery in the current year. We forecast a further contraction of 5% for calendar year 2013.

According to data from the International Organisation of Motor Vehicle Manufacturers (OICA), the industry produced 848,000 passenger cars, which is the first time output has dropped below 1mn units since 2008. Similarly, commercial vehicle (CV) production fell to 141,110 units, after surpassing 200,000 units for two years. For the Iranian year, car output totalled 788,000 and 132,000 CVs were produced. This was largely in line with our expectations for a mixture of pressures - ranging from the withdrawal of foreign partners to export bans - to weigh on production (see 'Outlook Worsens As Iraq Ban Hits Exports', January 30).

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There is reason to believe that the situation is improving for national carmakers, albeit slowly. Monthly data from the Iran Vehicle Manufacturers Association show that for the Iranian month corresponding to February 2013, output was down 37% y-o-y, compared with a 45% drop in the previous month and a 53% decline in the month before that.

Much of the uptick can be attributed to Iran Khodro Industrial Group (IKCO) recommencing production of the Peugeot 206 in December 2012. Production was halted when the French carmaker stopped exports of components under international sanctions, but IKCO claims it has now become self-sufficient in the manufacturing of the model and has been aiming to increase its daily capacity of all lines to 2,500 units.

In April Iranian IKCO announced it is planning to manufacture 550,000 cars in the current Iranian year without support from foreign sources. The company plans to manufacture passenger cars, such as the Runna and Samand cars and the Bardo pick-up. The company has put the daily production of 2,000 sets of cars on its agenda, with parts and components from Iranian part makers, said Hossein Najari, IKCO's vice-president for production.

Further long-term upside potential comes from a new plant in the planning stages due to open in 2015. According to ISNA reports, the plant will have an annual production capacity of 5mn units and will produce the first fully national car to be sold for US$10,000-12,000. If this projected capacity is correct, BMI believes it will be incredibly ambitious to achieve and as such we have not factored this full total into our forecasts. We have raised our outlook for 2015 and beyond to take new capacity into account, but await confirmation of the new plant's projected capacity.

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