One of the industries that have been welcomed by investors after the Comprehensive Plan of Action was the automobile industry. This industry, due to its job-creating nature and its vast production chain, has enjoyed many governmental supports including ban on imports of automobiles, imposing high custom duties on the import of automobiles, payment of various loans and their suspension (moratorium), etc. Despite these supports, Iranian auto-producing companies in comparison to other international automakers could not reach a desired level of standards due to a variety of reasons including the management (refer to administration and management) of these companies, which will be discussed below:

The managers of automobile producing companies are indirectly appointed by the government, which results in the involvement and interference of the government in different affairs of these companies, for instance we can point out the construction of automobile production sites abroad within the recent years. Iranian automakers have invested in different countries such as Venezuela, Syria, etc, which are countries with high systematic risks. These companies have practically gained no profit from these investments and we can consider these investments as lost. On the other hand, domestically the contracts between these companies and various foreign companies have always been the subject of dispute and the government has been directly involved and influential in these contracts. The contracts for manufacturing Peugeot-206 and Renault-L 90 are two main examples of such contracts. In addition to the problem of designating managers by the government, the term of office for CEOs and board members in these companies are short, which results in frequent changes in policies and strategies of the companies and in the end will lead to an increase their costs. The design and manufacturing of the automobile Rana in the Iran Khodro Group is an instance of such weakness, a vehicle that was designed to be produced in the Chinese market but in the end was offered in the Iranian market and became a competition for another product of this company, namely Peugeot-206SD. Flaws in management can also be detected in other sections of these companies: these companies take advantage of a large number of work force, and the per capita ratio of the production of the workers in these companies in comparison to other international manufacturers is high.

Company Number of Work Force Annual Production Work Force per capita
Iran Khodro 11.52 601,393 52,189
Saipa 9.51 374,298 39,326
Nissan 65.29 5,100,000 172,000
Kia Motors 75.68 2,915,000 40,000
Ford 33.53 6,674,000 199,000
Hyundai 47.39 4,963,000 104,731
Volkswagen 16.41 10,017,191 610,076

 

As seen in the above table, per capita production in Iranian manufacturing companies has a significant difference with other companies around the world. It is noteworthy that the low level of per capital production of the Volkswagen Company is due to the manufacturing of a vast range of commercial and luxury products. In addition to the workers per capita production, another remarkable point in the table is the production level of the companies. The two large auto producing companies in Iran have a production volume of less than 1 million automobiles per year, the maximum amount of production in Iran in 1390(2011) has been equal to 1.4 million automobiles which, compared to other major car manufacturers is very small. On the other hand, lack of collaboration of these automakers in the design of a common platform is one of the negative elements that have to be taken into account. Low levels of production and lack of collaboration between automakers leads to the fact that Iranian automakers do not possess economies of scale and become weak in comparison to other competitors. This problem has been spread to manufacturers of auto parts and has resulted in their weak performance, which will deteriorate the possibility for them to benefit from a supply chain in order to diminish the final price and therefore higher profitability. On the other hand, low production levels along with the present variety in production leads to no new design in these automobiles and therefore lack of innovation in these companies. Little changes in the automobiles produced by these companies and being left behind by other competitors in design and production of new products support this claim. Another issue is the problem of financing in these companies: due to the increasing growth in the production of automobiles within the past two decades, these companies obtain the major part of their financing for their working capital by advance sale of automobiles and acquiring loans, and a small portion of the financing by issuing equity. The cost of obtaining loan in Iran is presently above 25% which is a high rate compared to other countries. This kind of financing results in an increase in the financial costs of these companies and a major part of the companies operational profit will be spent to cover this cost, which eventually leads to a decline in the net profit and therefore loss for many of these companies.

Considering the above mentioned issues, the majority of these problems are rooted in the management of these companies. With improving in management, these companies can increase their efficiency and productivity, and by taking advantage of existing opportunities they can draw a positive outlook for their future.