Lack of liquidity has been strangling Iran’s auto industry for years and according to the director of Iran Auto Parts Makers Association suppliers have borne the brunt of the problem.
Reza Rezaei says, “The main problem of carmakers is lack of liquidity. They cannot repay their debts to parts makers and suppliers have been forced to live with the adverse conditions for years.”
Parts makers are expected to increase the quality of their products overnight without any proper backing and investments, he said. In Rezaei’s opinion, the only way out of the current unacceptable conditions is government intervention.
Head of automotive industries department at the Ministry of Industries, Amir Hossein Ghanati says, “In the coming fiscal [starts in March 2018], the ministry is set to offer 20 trillion rials ($100 million) in the form of incentives to local industries. Of this sum one trillion rials ($25 million) has been earmarked for the automotive industries.”
Ghanati added, “Renovation of production lines is on the government’s industrial agenda and the incentives will be used for the purpose.”
Furthermore, the government is planning to offer loans and other incentive packages to local parts makers who have invested in R&D and their products meet international standards for export.
Addressing parts makers’ oft-mentioned complaints about automakers’ delayed payments, Ghanati admitted that “Domestic carmakers are saddled with problems in repaying their debts to parts makers,” implying that government-backed loans may assist the companies in clearing some of their debts.
Reports indicate that the two largest automakers IKCO and SAIPA owe local parts manufacturers $2.4 billion.
Beleaguered Industry
Lack of financial resources is not the only problem the suppliers are facing. According to IAPMA spokesperson Farhad Behnia, “While the cost of raw materials and foreign exchange rates have significantly increased over the past three years, the price on auto parts is stuck in the past.”
While local carmakers have routinely jacked up prices, Behnia says, “They have rejected suppliers’ requests for money.”
Low prices and the meager margins have forced many parts makers to down their shutters, he added.
He says IAPMA has called on members to send their financial records, list of prices and costs to the association. That information will be sent to the Majlis and the Ministry of Industries as verifiable evidence why the price of auto parts must be revised on the upside. According to Behnia, so far 80 companies have submitted the information. It is not known whether the critical reports will be made public.
One of the other grim situations Iran’s auto industry is struggling against is the flood of low-quality and fake auto parts imported through illegal means. Unregistered companies in big numbers have undertaken shoddy production deals with Chinese auto parts makers. The Chinese produce inferior copies of Iran-made parts, package them and also stick holograms on the contraband.
While most critics and market observers say deregulation and decreased government oversight is the only possible way to salvage the lethargic auto industry, parts makers insist on more not less regulations.
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