IKCO, SAIPA Owe $2.4b to Parts Makers

Iran’s largest automakers Iran Khodro and SAIPA owe local parts makers $2.4 billion, according to industry insiders.

According to a report by Financial Tribune’s sister newspaper Donya-e-Eqtesad, the figure has doubled in the past two years.

Speaking to the newspaper on condition of anonymity, the source said the funds earmarked to repay their debt were allocated to a single firm when its main production plant caught fire a few months ago.

 Fire at Production Plant

The production line of one of the largest Iranian auto parts makers, Crouse Company caught fire in April and adversely affected the auto sector.

As it is one of the main parts suppliers, both IKCO and SAIPA faced a lack of several parts and the production of several models was delayed.

With the allocation of funds, the company’s production sites are being rebuilt.

However, the lack of liquidity had made IKCO and SAIPA incapable of paying their debts to others.

In addition to IKCO and SAIPA, Crouse has strong ties with international businesses. Germany’s Continental, known for its high quality tires, has signed a joint venture deal with Crouse to set up a local auto parts production plant.

The two companies will produce injectors, engine management sensors and electronic control units through the JV named Crouse-Continental Automotive Components.

Furthermore, the Iranian company has a deal with France’s Faurecia. The joint venture called Faurecia-Crouse Advanced Exhaust System was signed last December in Paris between Faurecia and Crouse-MAAD Iran, an Iranian conglomerate.

The deal will produce emissions control systems for the Iranian automotive market.

 Reliance on Foreign Suppliers

Iranian automakers rely on foreign supplies for the production of several models, especially cars considered high quality vehicles by the locals.

Moreover, the recent joint ventures forged with foreign companies like PSA Group and Renault will certainly increase this reliance since Iranian suppliers and carmakers are not able to produce the required parts, neither in terms of quality nor quantity.

In all of the recent JV deals, a clause has conditioned the contracts to technology transfer.

According to the deals, at least 40% of the parts used in the vehicles should be locally manufactured. However, Iranian firms are sidestepping the terms, counting painting the cars as part of the local production and technology transfer process.

During a recent interview, Iranian Deputy Minister of Industries, Mining and Trade and Director of Industrial Development and Renovation Organization of Iran Mansour Moazzemi called assembling vehicles from imported units an “act of betrayal”.

The interview has been published on the official website of IDRO. Moazzemi stressed that Iran has some 5 million jobless people, hence importing completely knocked down units and assembling them for the local market are against the national interest.

According to Moazzemi, 10 Iranian auto parts makers have been able to join Renault’s supply chain and contribute to the expansion of Renault’s operations in Iran.

The French carmaker signed a memorandum of understanding with IDRO in September 2016 to establish a joint venture partnership to annually produce 150,000 cars in Iran.