The most important problem faced by Iranian industries, especially automobile industry, is lack of a national strategy. Although the 20-Year Perspective Plan as well as strategies related to Article 44 of the constitution have been notified, the government does not implement them. In fact, since the advent of the Islamic Revolution, we have been facing this problem. Since we did not have a clear strategy, our industries moved like a pendulum, because when Iran’s foreign exchange revenues were high, one decision was made, and when those revenues dipped, another decision was adopted. For example, under Mr. Behzad Nabavi and during wartime, we followed policy of import replacement. When Mr. Hashemi was elected president and Nejad Hosseinian was minister of industries, the government was inclined toward economic liberalization. Under Nematzadeh and Shafei, once more, the import replacement policy was followed and when Jahangiri took charge as minister, the direction was again set to economic liberalization. Now that Mr. Tahmasebi is minister, though he is chanting slogans about development of exports, we are practically replacing imports. Such a pendulum-like movement has confused industrialists.

Iran also lacks a five-year table to set tariffs and determine their changes. Under Mr. Jahangiri as minister of industries and mines, the ministry moved to formulate a clear strategy and a group of economists, and university lecturers started to draw up that strategy. However, that plan was aborted by Mr. Khatami (the former president) due to sharp criticism that it drew from some university lecturers. The new government has changed the past strategy, which is still confusing industrialists and craftsmen and has not clarified Iran’s interactions with the global economy and the next stages that we must go through. For example, that strategy says nothing about how to avail of technical and engineering know-how and industrial activists do not know whether that know-how should be imported or invented.

We must make it clear whether major carmakers are to be merged with bigger companies, as Turkey did, or we are going to produce everything inside the country.

L90 contract is an example and despite all problems, it was in Iran’s benefit. Iranian carmakers learned a lot about cost management through it. Unawareness of cost management could be seen in the case of Samand sedans. Samand was supposed to take place of Paykan in terms of price, but inability of domestic carmakers to manage costs, greatly increased that cost. However, Iranian carmakers learnt that through L90 contract.

Before Mr. Jahangiri, the issue of attracting foreign investment was a taboo. Afterwards, due to export development policy, the Ministry of Industries and Mines took a positive stance on the attraction of foreign investment. Although during that period, tariffs were set for five years and major goals and policies of the automobile industry were determined, suitable regulations were not approved in his time to be followed by the next governments.

To explain more, we would have to discuss spare parts production industry, which is the basis of automobile industry. If we want to have a powerful and competitive auto industry, we must have powerful and competitive parts industry, which is unfortunately lacking in Iran because we have never had a clear policy to bring part manufacturers under a single umbrella and turn them into major spare parts producers. For example, there are 10 tire production units in Iran whose total production amounts to that of a single tire production plant in Turkey. Therefore, their production cost is, at least, 10 times that of Turkish counterparts, which makes them incapable of competition. More importantly, smallness of those industries prevents joint investments with major tire producers.

At a time that export development policy was in focus, a large number of small and costly part manufacturing plants as well as CKD carmakers were established. Although the then minister of industries and mines was opposed to that situation, he could not change anything.

The same happened to other industries and, in some cases, the number of permits issued surpassed domestic needs and the resultant industries were not producing at full capacity. They avail of, at most, 30 percent of their capacity and have no plan to purchase technical know-how or engage in joint investment because they are not able to do that. So, the policy for promoting mergers of small plants and establishment of big companies was not implemented in Iran and even Mr. Tahmasebi has ignored that policy during the past two years.

Another consequence of lack of strategy is reflected in attention to development of a national brand. They are urging that carmakers should register five national brands and this issue has become a matter of prestige and political importance. The globalization trend has downplayed importance of national brands. Toyota and Ford aim at increasing efficiency of their engines. When big companies have been merged in the world, it does not seem logical for a carmaker to try to carry out all stages of production single-handedly. It is a good thing to be producer and own technical known-how, but it will not be necessarily and economically feasible goal. When we do not have a strategy, we do not know that an economic corporation should be managed in line with economic principles. Therefore, the company itself should decide on how and for whom to produce cars and it is not an issue to be discussed by a Majlis deputy. Many officials have told Iran Khodro that achieving a national brand is important and have announced their support for that while Iran Khodro has received no budget to do that.

Iran Khodro invested 400 billion tomans in Samand as the national brand and has paid a lot in interest to domestic banks. However, thus far, less than 400,000 Samand sedans have been produced and its production is, therefore, uneconomical. The new models of Samand, which are being produced know, require more investment. Therefore, having a national brand may be important in terms of prestige and politics, but it is costly in economic terms. The former Malaysian prime minister, Mahathir Mohamed, defended Proton for 20 years, but was at last forced to negotiate with Volkswagen and Citroen.

On the other hand, we are facing technical problems and we have to cooperate with major international carmakers to obtain the needed know-how. At present, Spain is producing 3 million cars per year without having a national brand. All famous car brands are present there and the country has never tried to develop a national brand. The important thing for them is to make sure that Spanish workers, managers and engineers are doing the job.

Mexico, Thailand, and Turkey are doing the same and have created a lot of jobs while transferring technology. Turkey is currently exporting 15 billion dollars worth of cars per year. However, Iran Khodro will be capable of importing 300 million dollars cars at most. Officials have planned to increase that figure to one billion dollars, but it still would be far below Turkey’s car exports.

The more important problem is lack of a clear-cut strategy. At present, it is not clear whether we should accede to the World Trade Organization or it is an imperialistic institution. When Jahangiri was minister of industries and mines, great emphasis was put on the issue of increasing competitiveness of the automobile industry. They were seeking ways to minimize impacts of accession to WTO on Iran, but nobody has ever made it clear how that competitiveness should be increased.

Are we supposed to invent the wheel or should we use other countries’ experiences? Have other countries done the same and been successful? China started its economic development by imitating other countries and even their brand names were imitations. In fact, due to lack of needed infrastructure, that is big spare part manufacturers, as well as the high cost of production and low quality, we cannot emerge as a major carmaker. If he government is planning to introduce a national brand, it should undertake the costs. The plan to come up with a national brand is doomed because global experiences prove that. Another problem faced by automobile industry is that the ninth government does not believe in sharing experiences and availing of each people’s ideas. Mr. Nejad Hosseinian established a decision-making think tank and asked its members to make joint decisions. He called on everybody to play a role in that headquarters.

Mr. Jahangiri moved a step forward and apart from the said think tank, arranged sessions with private organizations and managers to hear what they had to offer. However, that trend was totally forgotten by the ninth government and officials make decisions, which are impractical.

One of those decisions was made on Note 13 of the Budget Act and problems surrounding it. At present, the Iranian parliament has approved a plan according to which 20 percent of vehicles should undergo fuel switching. This is not possible and it has not been done in any other part of the world. If this is going to be done in Iran according to the existing laws, we should have 10 million gas burning cars in the country within the next 4 years. At the same time, the number of gas burning cars in the whole world is only 1.5 million. Such decisions are due to lack of proper interaction between the government and guild associations, which has been emphasized by the Fourth Economic Development Plan. Of course, Note 13 is one of the most important laws on transportation sector, but some of its decisions are impractical.

For example, a plan has been made to replace dilapidated cars with new ones. This requires major changes and existence of needed infrastructures inducing increased production by carmakers. The government could have interacted more constructively with the industry and taken more practical decisions. For example, instead of "replacement" they could have "phased out" the old cars. The government could also avoid of paying bank facilities and undertake 7 percent of total interest that drivers should pay on new cars. The problem is that the government is interfering in all executive affairs and instead of rowing, is steering the boat.