Iran’s auto industry is crippled with massive debts, a member of Iran Auto Parts Makers Association said.
Reza Rezaei also told Tasnim News Agency that over the past six months, Iranian carmakers owed 17 trillion rials ($75.22 million) to local parts manufacturers.
Noting that parts manufacturing companies employ hundreds of thousands of people, the official said if a loan is not extended to the carmakers immediately, the situation might grow into a crisis and many people would lose their jobs.
Rezaei called on lawmakers to take measures in support of the key industry, calling on Majlis to help remove impediments in the way of the auto sector.
In another report, IAPMA’s Secretary Maziar Beiglou told reporters that the automakers’ cumulative debt to parts makers over the past several years exceeds 350 trillion rials ($1.54 billion).
Arash Mohebbinejad, secretary of the association, a lobbying arm of the industry and the official debt collector, said if non-payment of debt could be construed as a crisis, the chronically indebted Iranian automakers have perpetually remained in crisis mode, ever since their inception.
The Iranian auto industry’s woes worsened after US ex-president, Donald Trump, pulled out of Iran’s nuclear deal and imposed crushing sanctions on Tehran in the summer of 2018.
Over the past three 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.
Iranian carmakers owe local parts manufacturers a total of $1.54 billion
According to the media, the government and Central Bank of Iran ratified an auto industry rescue package worth 100 trillion rials ($442.4 million) last year, to help the two major automakers Iran Khodro Company (IKCO) and SAIPA settle their debts to parts makers and boost production.
IKCO and SAIPA were each supposed to receive half of the lending.
Criticizing CBI for not being “helpful”, Mohebbinejad said the money has not been delivered to the carmakers yet.
Pointing to the industry’s latest layoffs, he insinuates the potential for 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.”
Dilemma of Parts Makers
Mohsen Razmkhah, an industry insider, earlier said the domestic auto parts makers are having a tough time procuring raw materials and key parts from foreign sources due to the US sanctions.
He said the industry has fallen into stagnation due to soaring currency rates that make it almost impossible to import machinery and equipment.
Since the US sanctions were reimposed, the rial has lost about two-thirds of its value and prices of almost all goods have soared to unprecedented highs. The greenback was trading at 226,000 rials in Tehran on May 17, though it hardly fetched 42,000 rials two years earlier.
Castigating the state’s poor management of the ailing sector, Razmkhah said loans act like sedatives in this struggling industry.
The government is the main shareholder of the biggest car companies, IKCO and SAIPA.
Both auto ‘giants’ are living on borrowed time, so it seems. They have long been sinking in a sea of red ink and are always salvaged by the government on the threadbare pretext that “thousands of jobs are at stake”.
“Borrowing has not and will not solve the deepening problems of auto parts manufacturers and an effective strategy is required to revive the industry,” Razmkhah said.
Automakers’ Loss
Despite talks about “toxic” loans, experts believe that the sector’s fiscal crisis can only be alleviated by a third party, most probably the government, as the automakers say they lack liquidity.
According to auto news, Iran’s ailing auto sector lost 300 trillion rials ($1.32 billion) in revenues during the last Iranian year (ended March 20, 2021).
Soheil Memarbashi, the head of Transportation Office at the Ministry of Industries, Mining and Trade, said the combined revenues of the two major automakers hit 1.5 quadrillion rials ($6.63 billion) last year, but they also accumulated massive losses.
Memarbashi said Iran's automotive industry is a critical sector, as it accounts for 18% of the country's GDP, that’s why poor decisions for the sector can have far-reaching consequences.
“With regard to the negative impacts of US sanctions on the sector’s interactions with foreign partners, Iranian automakers have been struggling to stay afloat,” he said.
Uncertain Future
Iran’s automotive industry has perennially faced problems even in pre-sanctions time.
But as expected, the US penalties gradually cut off the supply of raw materials and auto parts on a massive scale. Foreign carmakers and parts suppliers walked away from the lucrative market, fearing Washington’s ire.
Multifarious solutions have been proposed by authorities to minimize the negative impact of the US president’s open animosity and economic war, namely against Iran’s major industries. The proposals have produced nothing of essence, save for car prices going through the roof.
The Industries Ministry is in charge of regulating the loss-making automotive industry. Over the years, the ministry’s thick ties with the undeserving sector and vested interests of some state actors have impeded efforts for real reform.
Corruption scandals running into the hundreds of millions of dollars have further tarnished the auto sector’s public image. The scandals have made economic experts and informed observers wonder whether the paralyzed industry has a future.
As part of the ministry’s agenda to revitalize the sector, the localization of parts and technologies has been placed high on the agenda of the government and carmakers. However, the former simultaneously issued import permits for low tech auto parts like mudguards.
This makes one wonder whether Iranian authorities have an integrated strategy for the automotive sector.
