Marred with mismanagement amid an economic crisis, Iran’s auto industry is saddled with a massive debt, the head of a local guild of auto parts makers said.
Arash Mohebbinejad also told IRNA, “Iranian carmakers owe local parts manufacturers 310 trillion rials.”
Calculated on the open market forex rate of $1 to 157,000 rials on Wednesday, 310 trillion rials would amount to $1.97 billion.
This is while semi-state carmakers Iran Khodro (IKCO) and SAIPA receive hard currency loan facilities at the subsidized rate of $1 to 42,000 rials.
Mohebbinejad is the secretary of Iran Specialized Manufacturers of Auto Parts Association, a lobbying arm of the industry and the official debt collector.
He then issued a warning: “If a 50 trillion-rial loan is not extended to the carmakers soon, this can turn into a national crisis.”
If non-payment of debt could be construed as national crisis, the chronically indebted Iranian automakers have perpetually remained in crisis mode, ever since their inception.
The same argument applies to calculating the amount of the loan. It can be a $318.5 million loan or a $1.19 billion government handout, depending on the rate at which the facility is extended to them.
The Iranian auto industry’s woes worsened after US President Donald Trump pulled out of Iran’s nuclear deal and imposed crushing sanctions on Tehran. Over the past two years, the industry’s output has continued to nosedive.
With almost a million jobs tied to the industry, the Iranian government has been more than willing to give the companies a helping hand.
According to IRNA, the government and Central Bank of Iran have ratified an auto industry rescue package worth 100 trillion rials ($636 million or $2.1 billion) with IKCO and SAIPA each receiving half of it.
Criticizing CBI for not being “helpful enough”, Mohebbinejad said the money has not been delivered to the carmakers yet.
Pointing to the industry’s latest layoffs, he insinuates the potential for an impending unrest, “Parts makers were forced to lay off 150,000 workers after sanctions were imposed. These people are still jobless. If something is not done soon, the situation can deteriorate.”
Mismanagement and Corruption
While automakers blame the sector’s dismal conditions on US sanctions, economic experts and independent observers place the onus on the managers’ inherent mismanagement, nepotism and corruption for the decline in the once-lucrative industry.
Local companies last year produced 1.34 million cars and commercial vehicles to register a 40% YOY decline, data published on the Organisation Internationale des Constructeurs d’Automobiles’ website (OICA.net) show.
The sector also had a bad year in 2012 when local car output dropped 39%. However, 2018 was the worst year, as its automotive output suffered the sharpest year-on-year decline in the 21st century.
Most market observers and analysts worry that 2019 could reveal a further downward spiral, as the economic situation deteriorates because of the US open hostility.
Iran’s worldwide ranking in terms of the number of vehicles produced has declined. Now the country is the 17th largest carmaker in the world. In 2017, it was 16th.
Last year, 851,000 cars and 491,000 commercial vehicles were produced. In 2017, auto output reached 1.5 million units.
Outspoken Critic
Carmakers and the government’s unconditional support of the sector have often been censured by independent observers.
A few months ago, vexed by soaring car prices and the carmakers’ unending groaning and moaning for state support, Bahram Parsaei, a parliamentarian, took to Twitter to castigate the carmakers and those in charge.
Parsaei, a pro-reform lawmaker from Shiraz, wrote, “The people [and economy] have been taken hostage by these [semi-state] carmakers. The prohibitive prices [and this chaotic market] are the direct outcome of the support of Industries Ministry and some MPs for carmakers and their market monopoly. The ministry and lawmakers are hiding behind the false pretext of supporting domestic production and workers' rights.”
Many observers have censured the state’s decades-old detrimental backing for the dysfunctional auto industry that simply cannot compete in the regional car market, let alone in the hugely competitive international marketplace.
As a matter of policy, the automakers love to claim that if automotive companies close down, hundreds of thousands of people would rush to the dole queues.
Many experts have declared that such inept arguments are misplaced, because if these bankrupt semi-state carmakers were to officially go bust, their workforce could work for the private sector.
Until then, law-abiding folks keep on asking: How long should we dig deeper into our pockets to pay for the failings of imprudent policymakers and inefficient automotive managers?
