Iran: Imported Cars Unaffordable

After months of wrangling between the government and auto importers over the imposition of new restrictions, new rules have been approved by the government. The online auto import registration system that had been suspended for months will restart at the weekend.

As per law, after getting auto import permits from the Industries Ministry, local firms are required to register online with the Trade Promotion Organization separately for every single unit.

The authorities shut down the online registration system more than five months ago saying the “import regulations are being rewritten.”

A member of the Parliament Industries and Mines Commission, Vali Maleki was quoted as saying, “Firms can register for new online permits from Dec. 31.”

Informed sources have told the Persian-language newspaper Donya-e-Eqtesad that in a late-night meeting on Sunday the government’s Infrastructure Commission approved “an amended version of auto import rules”.

After it is endorsed by the Cabinet, the new rules must also be approved by the Majlis.

One key clause in the new guideline is in line with previous rules that require importers to offer after-sales services, and obliges them to have a verifiable representation deal with the foreign carmaker or one of its official distributors.

Another contains the new import tariffs which have increased significantly.

As per the new rules, vehicles entering the country will fall into four categories based on engine capacity.

Import tariffs on cars with engine capacities up to 1.5 liters will be 15% higher reaching 55%. A 75% duty will be imposed on vehicles with engines between 1.5 to 2 liters — up 35%.

With a 40% hike, the import duty on cars with 2-2.5 liter engines will reach a solid 95%.

The new rulings indicate that henceforth companies can bring vehicles into Iran with engines of 2.5 to 3 liters. It needs mention that the import of this class of engines had been banned for several years. The import tariff for such vehicles will be a prohibitive 130%.

According to the new directive, the definition of ‘luxury cars’ is something different. Previously, all cars with engine capacities over 2.5 liters were considered as ‘luxury cars’ whose imports were banned. Now import of cars with engine capacity over 3 liters or costing more than $40,000 is banned.

However, overhead costs of bringing vehicles into Iran does not end just with tariffs, state and government bodies have a share of the lucrative business, in that the importing company or car buyer must pay a variety of extra charges, taxes and other overheads before the vehicle is ready for the road!

For instance, the local Traffic Police department charges importers 10% of the car value when issuing number plates while dealers are required to pay 1% tax to the local Red Crescent -- the money reportedly is used to buy ambulances.

One of the oft-mentioned mantras of government officials has been that “huge volumes of auto imports contribute terribly to capital flight”.  It is also reported that the Ministry of Industries is trying to sell its latest plan of action to limit car imports as a scheme to “give local automakers a new lease of life.”

When making claims about capital flight, high percentage of imported cars and supporting local production, the authorities fail to mention that in the first eight months of the current fiscal (ends in March) only 58,000 cars were imported while local firms produced/assembled close to 900,000 vehicles. In short, imported cars accounted for only 6% of the market.

By the same token, those in high places also prefer to forget that imported parts have an important role in cars made by local companies with government-backed carmakers IKCO and SAIPA often being criticized by the people and industry observers for merely being assemblers of imported auto parts. Seemingly, in officialdoms’ view, import of auto parts does not contribute to capital flight.

It is generally believed that higher import tariffs on everything translate into one thing: The poor consumers should dig deeper into their own pockets.

Earlier and when authorities shut down the online car import registration web portal,  the Financial Tribune wrote that the move would very likely bring in its wake a chaotic car market with much higher prices plotted by avaricious brokers. Over the past five months, prices of imported cars have increased almost on a daily basis with several models observing a 40% jump.

For instance the price tag on Lexus NX 200 has observed a 1.9 billion rials hike ($45,200) reaching 5.5 billion rials ($131,000) and Hyundai Santa Fe is sold for 3 billion rials ($71,500) about $16,000 dearer than its previous price.

 Gray Importers Back

The new guideline offers companies some solace. Gray importers could be back in the game. Gray imports of vehicles are new or used motor vehicles and motorcycles legally imported from another country through channels other than the manufacturer’s official distribution system.

Last winter authorities in Tehran in an unexpected move put an end to gray imports of vehicles depriving the sector almost of half the resources and channels used for car imports.

According to statistics by Iran’s Auto Importers Association, during the last fiscal that ended in March, 50% of the cars entering Iran were imported through such firms.