The domestic automotive market is experiencing one of the biggest recessions ever and a car expert lists the reasons behind it as well as the impact of car imports in the closing days of the current Iranian year (ending March 20).
Car dealers claim that the current recession is unprecedented which, surprisingly, followed the announcement of government plans to liberalize car import and supply economy cars.
According to Sajjad Hemmati, CEO of Arian Khodro Pars and an automotive expert, buyers have stopped buying cars and believe that car imports will cause prices to decline and that they could buy a good quality foreign vehicle at an affordable price, Donyaye Khodro reported.
“However, domestic car manufacturers have signed a contract with Chinese automakers which, in my opinion, will not bring about major changes in the market,” he added.
Commenting on market condition in the last two weeks of the current Iranian year, the expert noted that customers are still reluctant to buy and sell cars and the recessionary situation will probably continue until the last days of the year because the financial condition of people has not changed.
“In the past, demand used to increase in the last weeks of the year and the market would witness a relative prosperity. However, currently, the market requires an increase in the purchasing power of customers and a decline in car prices, both of which seems unlikely,” he said.
“Now that the government has announced its new approach toward car imports and a change in previous procedures, the market dynamism could change when the new cars arrive and price uncertainty ends.”
Nevertheless, Hemmati maintained that even imports will not reduce car prices in the domestic market.
“Undoubtedly, car prices will not decline and if they decline, it will be influenced by market conditions and won’t be significant. Most likely, car prices in the first months of the new Iranian year will more or less stabilize at the current high figures and buyers will have to go back to buying low-quality domestic cars and Chinese vehicles,” he added.
The expert believes that if the foreign exchange rate stabilizes in the current range, the sale of domestically assembled Chinese cars will resume.
Regarding new car imports, he said, “Fewer than 200 cars were purchased from the region and arrived at Iranian customs offices, which have not been cleared yet. This is despite the fact that [Mohammad Baqer] Qalibaf [the parliament speaker] had announced that they cannot say which cars from which companies will be sold in the market, but the applicants must have 5 billion rials [approximately $10,000] in their account as a deposit to buy these [unknown] cars. Such contracts cannot bring down the prices of domestic cars, but will only entrench recession in the market.”
Stressing that expectations of a quick price reduction after the entry of foreign cars are unreasonable, Hemmati said the only immediate effect that car imports will have for some customers is that they will have more options to choose from.
Rising Car Prices Blamed on Higher Cost of Raw Materials
Higher raw material cost is the main reason behind the rising domestic car prices, according to a member of the Board of Directors of the Iran Auto Parts Manufacturers Association.
“Car prices are influenced by numerous factors, including economic conditions and liquidity situation, which are beyond the control of car manufacturers and parts producers. But the 60% increase in the prices of raw materials, such as steel, aluminum, copper and petrochemical products, last year is the main reason behind the increase in the factory prices of domestic vehicles,” Maziar Beiglou was also quoted as saying by Khabar Khodro.
“In addition to this increase, the growth of overhead costs due to electricity and gas outages in parts production units has reduced production and increased the costs of component manufacturers, because calculating the overtime pay of workers increases the overhead cost of each component,” he added.
Commenting on the effect of the skyrocketing foreign exchange rates on the prices of vehicles and parts, the official said, “Considering the high level of self-sufficiency, the rise in foreign exchange rate will not have a direct effect on the prices of raw materials [and on auto parts and cars] and won’t increase prices by more than 20%. But the 60% increase in raw material cost had a direct impact on the prices of components and cars.”
Beiglou noted that importing raw materials such as steel sheets from Russia is cheaper for component manufacturers than procuring them from domestic companies.
Referring to other problems, the official said parts producers sometimes face challenges in procuring raw materials from the commodity stock market when their supply stops.
“However, currently, the most important challenge regarding raw materials is their prices, the growth of which has destroyed the effect of price correction this year,” he said.
“Domestic parts manufacturers have the equipment, machinery, resources and manpower to produce parts for 2.2 million vehicles annually, but this volume of production requires liquidity and overcoming supply network challenges. Therefore, under the current circumstances of raw material supply and liquidity, it is not possible to achieve this production capacity.”
