Vehicle Import Decline: Pros and Cons

Vehicle Import Decline: Pros and Cons
Vehicle Import Decline: Pros and Cons

The number of automobile manufacturing companies in Iran currently stands at 27. It is, however, common knowledge that the duopoly of Iran Khodro Company and Saipa hold the helm of the car industry.

Other companies—mainly assembling foreign cars from complete knock-down kits—only hold a meager share.

Even in its prime, local auto manufacturing has never been able to put an end to vehicle imports. Customers' dissatisfaction with locally manufactured cars has resulted in an unquenchable thirst for foreign models, automotive news website IVMA reported.

The decline in quality of locally produced cars, confirmed by quality inspection organizations, is proof that customers' disapproval is not misplaced.

The best locally assembled car in Iran last month—the Kia Cerato—received a score of -16.5 from Iran's Standards and Quality Inspection Company. The scores of the worst cars—Saipa's range of Prides— were so bad that they were not even announced.

Last Sunday, IKCO's CEO blamed auto part makers for the sub-par quality of locally produced vehicles. Hashem Yekkehzare, warned that to improve vehicle quality, his company will discontinue cooperation with certain part makers if need be, Tasnim News Agency reported.  

Nevertheless, to maintain a balance between the amount of cars produced locally and vehicles imported, the government introduced a number of regulatory measures.

A ban was placed on the import of vehicles sporting engines with capacities higher than 2.5 liters. Additionally, all vehicle imports had to be channeled through 35 officially certified companies. Both measures proved ineffective.

In June, the Trade Promotion Organization of Iran leaked data that showed during the incumbency of former president Mahmoud Ahmadinejad—the same time that the ban on imports of luxury cars was in place—1,000 luxury vehicles with engines over 2.5 liters were released from customs administrations overnight in March 2013.

In contrast, during the previous Iranian year (ended March 20, 2015) less than 0.5 percent of the total cars imported had engines over 2.5 liters. The report states that during the previous year, following the approval of the former administration, 711 vehicles with engines over 2.5 liters were imported.

  Q1 Imports Down

Q1 reports (ended June 21) for vehicle imports in Iran tell of a 51% decrease compared with the same period last year. During the period, 10,555 vehicles with a net worth of $246 million were imported, almost half of last year's 21,500 vehicles with $459 million net worth.

Several pundits believe the main reason behind the decline is that authorized importers and the ministry have been refusing to accommodate imports by unauthorized dealers.

Although the figures suggest that the efforts of the Ministry of Industries, Mining and Trade have not been entirely in vain, their course of action has been criticized for undermining, or even entirely cutting off, independent importers.

According to one auto industry specialist, "the act will only benefit official retailers that aim to eliminate independent competition."

"Official retailers could have retained or even increased imports. However, they have consciously chosen to let figures sink only to disrupt supply and demand," Farbod Zaveh told ISNA on Wednesday.

"By doing so, they can ultimately hike up their own prices and gain more profits," he said.

Experts believe that limiting imports is not enough. In order to help fill the void, improving the quality of locally produced cars is highly critical.