The financial reports of domestic automakers show that they have registered 18% production growth, which is the highest in the industrial sector during the third month of the current fiscal year (May 22-June 21).
However, these reports claim that the production growth came on the back of hefty losses, such that the accumulated losses of three car manufacturers, namely Iran Khodro, SAIPA and Pars Khodro, reached 770 trillion rials ($2.42 billion).
Experts and analysts believe that the rise in production will also increase the accumulated losses of automakers and if management practices and pricing structure are not corrected, car factories will soon face numerous problems.
"The Ministry of Industries, Mining and Trade has announced halting the production of Tiba, Tiba 2, Saina and Samand cars from the beginning of the fifth month of the current fiscal year [July 23],” Dariush Badiei-Sabet, an automotive analyst, told Donyaye Khodro.
“The decision has been timely for increasing customer satisfaction, but the unprecedented loss of 770 trillion rials makes it difficult to change the production platform unless the Industries Ministry overhauls its pricing framework,” he added.
Commenting on the replacement of Shahin CVT, Aria, Rana AMT, Haima S8 and Arisan 2 cars that have a higher quality than Tiba, Peugeot 405, Samand and Saina cars, he noted that removing economy cars and replacing them with costlier cars will prevent a wide range of domestic customers from owning a car.
Badiei-Sabet stressed that this will also lead to the retrenchment of auto industry workers.
Asked what measures should automotive officials and decision-makers take to compensate the loss of manufacturing companies in this field, he said, “What the financial statements of car manufacturers show is that production has increased compared to the last four years. There are two important points in this regard: First, although production has improved, the noticeable decrease in the quality of cars is undeniable. Second, a look at the balance sheets of these companies shows that their accumulated losses have increased by about 38% compared to last year.”
The analyst noted that as long as this equation persists, the rise in production will not help automakers compensate these losses.
Badiei-Sabet said the surge in losses caused by command pricing has negatively affected the profit margin of domestic automotive companies.
Sanctions, Command Pricing Roil Domestic Automakers
Domestic automakers are experiencing losses due to command pricing and supply-demand problems, according to an automotive expert.
"The conditions created by sanctions in the last few years have reduced the production of major car manufacturers due to the rise in overhead costs. This while the Ministry of Industries, Mining and Trade did not permit an increase in prices. As a result, Iran Khodro Industrial Group suffered an average loss of 200 million rials [$634] and SAIPA Automotive Group registered a loss of 150 million rials [$476] from the sale of each car, which indicate an average loss of 175 million rials [$555] per car," Reza Aryarad was also quoted as saying by Donyaye Khodro.
Asked about the best solution to reduce the losses of domestic car manufacturers, he said liberalization of car imports could be used by the government to balance the market, as it would allow those who have the financial ability to buy foreign cars.
The expert noted that due to the volatility of foreign exchange rate and restrictions imposed by sanctions, the low price of products set by the government has become an obstacle to compensating the accumulated losses of car manufacturers.
“Entering the Middle East markets is the second option for domestic automakers,” he said.
This makes little sense because the regional markets have access to high quality foreign cars with a low profit margin compared to the Iranian car market.
Aryarad said Western sanctions have caused Russia car manufacturers to be drawn toward Iranian parts manufacturers.
"In such a situation, the supply chain of auto industry parts should focus on meeting the needs of that country's market. Because in that case, production will increase and the final price of parts will become affordable for both countries," he said.
