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Carmakers in negotiations with Iran

By Guy Dinmore in Tehran
The Financial Times
February 10, 2000

Italy's Fiat and Volkswagen of Germany are holding negotiations on making significant investments in Pars Khodro, an Iranian state-owned carmaker to be privatised next month, Iranian officials said on Wednesday.

Ahmed Ghorashi, chief negotiator for Pars Khodro, said Fiat had proposed taking an initial 20 per cent stake. But Pars Khodro has suggested that Fiat join in a consortium with Iranian investors that would buy at least 85 per cent of the company, with Fiat possibly taking a majority stake later.

Fiat is interested in assembling the Palio, a compact car, in Iran where annual domestic demand of 500,000 cars is about double the total production capacity of Iran's three main carmakers.

Pars Khodro aims to produce about 20,000 vehicles this year, mostly the four-wheel drive Nissan Patrol and an Iranian version of the Renault 5.

The company was originally owned by General Motors of the US but was nationalised after the 1979 Islamic revolution that overthrew the shah.

Iran's Industrial Development and Renovation Organisation (IDRO), a state holding company for nationalised industries, intends to auction at least 85 per cent of Pars Khodro on the Tehran Stock Exchange on March 5 at a starting price of 510bn rials (about $60m at the open market rate).

Akbar Turkan, IDRO managing director, said Volkswagen was holding talks with Pars Khodro on assembling the Skoda in Iran in a three-way exchange of components that would also involve Volkswagen plants in Bosnia and the Czech Republic. Mr Ghorashi said Pars Khodro would prefer Volkswagen to become a shareholder. "We are very interested in having foreign car investors in our car industry, but it depends on them being interested in Iran," Mr Turkan said.

Iran's car industry is extremely protected with only limited imports of foreign cars. Iran also offers cheap energy, steel, plastics and average wages for an assembly worker of about $65 a month. But foreign carmakers are concerned by restrictive labour laws, possible political instability and whether disputes would be settled by international arbitration or Iran's judiciary.

France's Peugeot is already assembling its Peugeot 405 with Iran Khodro, Iran's biggest carmaker.


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