The prices of foreign vehicles have soared astronomically in the past few years along with the rising foreign exchange rate of the US dollar in the domestic market.
However, in view of the stagnation in the foreign car market and the slow downtrend in forex rate, will the price bubble pop?
Some foreign cars have recorded a 90% price growth in the domestic market. For instance, the JAC S5 automatic was priced 900 million rials ($3,249) in fiscal 2017-18, which has reached 9 billion rials ($32,490) in the current fiscal year’s 10th month (Dec. 21-Jan. 20), Donyaye Khodro reported.
Also, the price of the Renault Talisman car has increased from 2.15 billion rials ($7,761) to 19 billion rials ($68,592) in the same period.
The price of $1 has increased from 100,000 rials in the fiscal 2018-19 to 320,000 rials in the current fiscal year. In other words, the USD price has risen by about 65% over the past three years.
The uptrend in foreign car prices in the last few years, ban on car imports and the lack of brand-new cars in the domestic market adversely impacted foreign car sales. Therefore, automotive experts believe that as the market is currently experiencing stagnation, a price decline is highly likely.
Currently, the fall in the USD price has not impacted the prices of foreign cars. Perhaps the only way to fix the foreign car market is by removing the car import ban, which can have a significant downward impact on the market.
Given the market instability, imported cars do not have stable prices and depend on the whim of dealers and this has created a huge price bubble. As a result, transactions in the foreign car market have currently reached zero.
Some experts believe that if the car import ban and import tariffs are abolished, the price bubble in the market will certainly burst and prices will experience a downslide.
They maintain that if the nuclear talks, currently underway in Vienna, Austria, lead to positive results, domestic car prices will definitely decline.
As the final months of the current Iranian year (ending March 20, 2022) draw closer, the hope of foreign car market recovery has brightened. This is while last year, despite the Covid-19 pandemic, demand for cars was higher than this year.
Reducing Car Parts Import Bill
Despite the ban on foreign car imports, the domestic automotive industry has not succeeded in producing high-quality cars on par with international standards. On the contrary, it continues to rely on the import of key parts, which also faced difficulties because of the reimposition of US sanctions in 2018.
The Ministry of Industries, Mining and Trade has launched the fifth round of its auto parts localization scheme, which is expected to reduce imports by €56 million annually.
According to the initiative announced in an event held late last week at the Industrial Development and Renovation Organization, the ministry has financed 22 collaboration deals between domestic automakers and parts manufacturers, IRNA reported.
Deputy Industries Minister Mehdi Sadeqi-Niaraki said the domestic auto sector should be restructured and modified.
"When a sector begins to lose money, it cannot be expected to be deeply indigenized, competitive, or investible," he added.
He stated that nine projects have been designed to achieve this structural modification, including the revision of auto pricing, the redrafting of company management and ownership, and the reactivation and expansion of commercial vehicle production lines.
Sadeqi-Niaraki noted that simply designing an ambitious project is not workable without strong will and action, pointing to the fact that similar plans have repeatedly been designed to streamline the sector over the years.
"We hope that these serial indigenization contracts will converge with the empathy of the sector's authorities and deliver positive, long-term results," he said.
According to the deputy minister, the deeper the localization efforts, the larger the investments.
“As more complex auto components are targeted, their production will necessitate upgraded technologies and expertise. Achieving such prerequisites is a must to bypass the limiting effects of US sanctions, boost localization and increase auto production to meet the 3 million-unit goal this year," he said.
In the summer of 2019, the Industries Ministry launched its localization initiative to ensure the domestic auto sector's self-sufficiency. According to the ministry, the previous four rounds of auto parts localization saved €343 million in annual imports.
Officials from the ministry and auto industry insiders are optimistic that such localization efforts, combined with the contributions of other entities, will increase domestic auto output and mitigate the negative effects of US sanctions against Iran, which have limited the country's commercial relations with foreign partners.
