Local carmakers in Iran that long have earned the fury of an increasing number of people, respected environmental activists and prominent economists for their extended mismanagement and dubious practices, have been singled out again.
University instructor, well-known economist and a former journalist, Hossein Raghfar, has one simple message for the upstart automakers: rethink your controversial policies or shut down and leave.
In a talk with the news website Fararou, Raghfar said, “For 40 years Iranian automakers have received generous state and government support,” adding that in return for the money they get from the national treasury, “Carmakers now must revise policies and improve performance. If they can’t do that, they’d better shut their business and go home.”
Over the past few months and following re-sanctioning by the US, Iran’s economy has taken a hit and the local auto industry has plunged into something closely resembling a big black hole. Auto output has dropped by 30% and things could get worse.
Using the economic challenges as a pretext, the two semi-state-owned car companies, Iran Khodro and SAIPA, have jacked up prices up to 50% and mover on several occasions just in the past few weeks.
While the companies are quick to point the finger of blame towards the US economic sanctions and President Donald Trump’s unending animosity towards Tehran, independent observers say mismanagement at SAIPA and its archrival IKCO has had an unprecedented negative impact on the fast declining industry.
Accusing carmakers of rent-seeking and “operating as one big mafia”, Raghfar is of the opinion that the inherent corruption in Iran’s auto sector is the one main issue that has harmed the industry, may be irreversibly.
Unlimited Backing
“For decades Iranians have been forced to pay for mismanagement of car companies. For decades, these companies have enjoyed unlimited government support. What is the outcome? Substandard, fuel-intensive and smog-inducing vehicles!”
Pointing to the pattern of rising car prices, the veteran economist said, “Considering the quality of vehicles made by Iranian companies, their products are abnormally overpriced.”
Raghfar, a researcher in poverty alleviation and social justice, said, “The recent jump in car prices will affect all Iranians. The impact will not be limited only to car buyers and the auto market.”
Iranians continue to pay for the gross mismanagement in car companies that have enjoyed generous government support – few if any other industry is eligible for. And the outcome has been substandard, fuel intensive and smog-inducing cars with prices going through the roof
The high and rising car prices will have a domino effect on other markets and prices of other goods are likely to increase sooner rather than later.
Visibly annoyed by the automakers' irresponsible ways, Raghfar asked the judiciary to step in and investigate the fast-spreading chaos in the auto sector.
Raw Deal
Over the past two months, after receiving the green light from the Industries Ministry, local automakers jacked up prices by 30-50%.
SAIPA’s Pride — based on a Kia Motor hatchback from the 1980s — is the cheapest car in Iran and comes in various models. The best-selling is the small SAIPA 131 which costing 229 million rials ($1,970). The price of this model has increased by a massive 40% reaching 337 million rials ($2,900).
IKCO has raised prices of several models. According to ikco.ir, the locally designed sedan Dena now costs 660 million rials ($5,690) – up 40.7% and the price of a face-lifted version of Peugeot 405 with automatic gearbox (locally known as Peugeot Pars) has increased from 540 million rials ($4,650) to 790 million rials ($6,810).
This is while almost all cars made by the two firms are of poor quality. For years, IKCO and SAIPA have been criticized for the low quality of their vehicles that independent observers say are unsafe.
Earlier and in a rather blunt criticism of the auto companies infamous for high prices and poor quality, the Traffic Police chief said hardly 30% of the cars made in the country can be placed in the acceptable category when it comes to safety standards.
“Traffic Police had to fight long and hard for implementing basic motor vehicle safety standards,” General Taqi Mehri told reporters in December. “Only 30% of cars are safe to drive.”
Given the deteriorating conditions of the local auto industry, observers have lost hope that things can or will take a turn for the better anytime soon.
Industry Overview
During the nine months to Dec. 21, 2018 domestic auto production plunged to 763,519 cars and commercial vehicles -- a 31% year-on-year decline.
According to the Ministry of Industries, during the nine-months 713,233 cars were produced, down 31.2% compared to 1,037,374 made during the same period last year. During the period, 50,101 trucks, buses, minibuses, and pickups were made -- a 27.4% YoY decline.
A closer look at the numbers indicates bigger challenges are in store for the key sector. During the past Iranian quarter that ended in December, car production halved compared to last year with output plummeting to 167,907 cars from 391,801 a year earlier — down 57% YoY.
Iran Khodro and SAIPA are visibly in disarray with both reporting 35.4% and 30.3% decline in output.
During the nine-month period, IKCO’s total production fell from 520,480 cars and commercial vehicles (made last year) to 335,953 units this year -- a steep 35.4% Y/Y fall. Data says IKCO produced 327,792 cars during the period – down 35.8%.
Last December the firm’s output sank further, from 65,769 last year to 19,372 cars, a 70.5% year-on-year drop and its daily output plummeted from 2,192 cars to 645 units.
IKCO’s main rival SAIPA is also struggling and facing an uphill task. Over the nine-month period, SAIPA churned out 328,355 cars and commercial vehicles, -- a 30.3% decline compared to the 471,405 units made during the corresponding period last year.
In the month ending Dec. 21, SAIPA reported 75.9% fall in output with 15,572 cars and commercial vehicles. Daily production of the second largest carmaker has dwindled from 2,156 to 519.
