LONDON -- Iran Khodro is planning to cement its position as the country's leading local and regional motor manufacturer by increasing production to over half a million passenger cars a year and adding new models.

"We plan to increase production of passenger cars to more than 500,000 units from 350,000 units within two years," Vice Chairman of Iran Khodro's Board of Directors, R. Esmaeli told **Middle East Economic Digest** daily.

He said that much of the new capacity would come from rising production of the company's Flagship Samand, the 'National Car' also known as the X7.

The Samand includes more than 85 percent of locally manufactured parts and plans to produce 100,000 units of the Samand by 2003, rising to over 200,000 units by 2006.

Esmaeli said that demand for the car was high both domestically and regionally since its launch in 2001. "We have already had inquiries from dealers in the UAE," he said, adding that Iran Khodro had a partner in Egypt and also relations with Indian companies.

According to MEED, Iran's biggest car manufacturer was also set to complement the Samand within three years with the Pika, a successor to the Peykan, which has been in production since it was launched with Hillman of the UK in 1967.

"The pika will replace the Peykan and will be a completely newly- developed model," Esmaeli said. "It will be an economy passenger and family car with a target price of about $3,000," he said.

The weekly also reported that Iran Khodro had begun negotiations with Iran's second largest automobile manufacturer, Saipa, to explore ways of future cooperation ahead of a possible opening up of the Iranian car market in the next few years, IRNA reported.

Iran Khodro was also said to be working on strengthening its ties with Daimlerchrysler of Germany and had signed a preliminary agreement in early May to set up a manufacturing site for the assembly of two Mercedes Benz models in Iran.