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Auto Sector Gets a Jolt

Auto Sector Gets a JoltAuto Sector Gets a Jolt

Over the past couple of months, a new global trend has emerged in the automotive sector, a situation where car assemblers and importers offer several payment modes to suit different budgets and sell more cars.

Iranian car dealers have always had the upper hand when it came to dictating terms while selling cars, but recent prices and payment structures announced by several dealerships and published on websites such as Persian Khodro denote a new type of desperation to shed the lingering stock.

During the sanctions period, cars were seen as a decent investment, such that at some points prices increased on average by 30% annually. Car buyers would pay for the vehicles and then leave them inside parking bays to make a profit.

The current unusual, but positive situation wherein carmakers offer significant discounts on new models is most probably a good sign that the market is favoring buyers.

Just the other week, several national carmakers offered special discounts on several vehicles to mark the anniversary of the liberation of Khorramshahr from the regime of Iraqi dictator Saddam in 1982. Offers on this day allowed buyers to pay in installments over several months.

Another sign that the market is becoming “more normal” in the international context is that carmakers recently refused to hike car prices by any significant amount. In previous years, they felt no compunction to slow down the periodic jacking up of prices.

Iran’s Competition Council, the body responsible for setting vehicle prices, had given the go-ahead in late May to domestic carmakers to increase car prices.

The council announced that local automakers may increase the price of cars sold for less than 400 million rials ($11,500) by 1.5%.

IKCO’s Peugeot 206, Peugeot 405, Peugeot Pars and Samand as well as SAIPA’s Tiba and Pride fall in the above price range.  

Moreover, two models, IKCO’s Dena and Renault’s Tondar (Logan, L90), were allowed a free rein to be priced by market forces. This should not be a seen as a major shift in strategy and purchasing power, but a move by carmakers to gauge market reaction.

  Medium-Term Forecast

However, the domestic auto discounts and payment plans leave much to be desired. Many potential car buyers are still not biting, as car producers and showrooms had hoped.

In fact, many buyers are quietly hoping the government bring backs the auto loan scheme that was trialed last year.

In November 2015, a list of 21 vehicles was originally earmarked for the low monthly payment scheme.

The auto loan ceiling had been set at 250 million rials ($7120 at market exchange rate), with an interest rate of 16-18% (above the baseline of inflation at the time). The payback period was a maximum seven years or 84 installments, Mehr News Agency reported.

The loan was to cover 80% of the car’s value or less, depending on the price of the vehicle.

The country had never seen such an offer and unsurprisingly the companies were inundated with buyers and the scheme had to be cut short after six days, which was originally planned to last six months.

This scheme, although short-lived, opened the door to what we are seeing now, smaller privately financed loans and low-interest schemes.

There has been no sign yet of foreign car companies offering their own payment schemes. If that were to happen, we could likely see a huge increase in the buying of all vehicles, as outside Iran low and even zero interest vehicle loans are the industry norm.

Financialtribune.com