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Iran’s Car Market: Heading High or Low?

Iran’s Car Market: Heading High or Low?Iran’s Car Market: Heading High or Low?

Prior to Iran’s nuclear deal with P5+1 (the United States, Russia, China, France and Britain, plus Germany), many Iranians expected a boom in the domestic auto market during the post-sanctions economic recovery, which has not yet materialized.

While many were looking forward to a significant decline in prices and a noticeable growth in automotive industry, almost exactly the opposite has happened. The prices are rising and car dealers are complaining about market recession.

To fully understand the situation, one must go back a little and study the last decade and the elements leading to the dramatic bust in Iran’s auto market.

Until 2011, Iran’s automotive industry was flourishing and production rate was rising. According to a report published by the International Motor Vehicle Manufacturers, Iran produced 1.6 million cars and ranked 13th among international manufacturers in terms of production numbers.

Following the sanctions imposed by the US and the EU and the concurrent rise in production costs, the value of Iran's currency rial declined considerably and several foreign companies, breaching their contracts, declined to fulfill their legal obligations and departed from the country. These led to a huge jump in prices.

In addition, high inflation and a negative growth rate led to a striking decline in national income and purchasing power. Therefore, even though the sanctions were lifted, the auto market did not observe the expected growth.

As a result, people face different narratives from car manufacturers and car dealers.

As Ahmad Nematbakhsh, secretary of Iran’s Vehicle Manufacturing Association, predicted in an interview with ISNA that the deal will ultimately help revive the domestic auto industry.

Nematbakhsh also forecast an unavoidable rise in prices by saying, “Since the new cars are equipped with the latest technologies and are of higher quality compared to those currently available in Iran, the prices are likely to be higher as well.”

Manufacturers implemented schemes like installment sale of new models and reported a transitory moderate growth in sales.

Considering the rise in operating expenses, any significant decline in prices will depend on normalization of international banking and trade relations.

One’s gain is another’s loss. While benefiting manufacturers, these measures will have the exact opposite effect on car dealers. A market once dominated by middlemen and dealers does not exist anymore and the rules of the game have changed.

Gholamhossein Qasemian, chairman of Car Dealers’ Association, said “60 car showrooms have been shut down so far this year”.

This was a result of new government regulations that stipulated the sale of cars by official representatives only, which favors the consumer rather than independent dealers.

Iran’s auto market presents a vast variety of opportunities and foreign automakers are eager to gain as big a share as possible from this highly lucrative market. For example, in 2014, cars sold in Iran made up 1.7% of all the cars sold worldwide. The winner of this tight race will be the one who best adapts to Iran’s market conditions and quickly presents new cars at reasonable prices.

Financialtribune.com