Iranian auto parts makers racked up losses of more than $791 million during the fiscal that ended in March, secretary of Iran Auto Parts Makers Association said.
“Local parts makers accumulated losses north of 110 trillion rials ($791 million) during the past fiscal year,” ISNA quoted Maziar Beiglou as saying.
He was speaking at a conference in Tehran Tuesday on Challenges and Opportunities for Iran Auto Parts Industry in 2019-20.
According to Beiglou, following the reimposition of US sanctions last year the cost of raw materials jumped a massive 250%. “But the government did not let parts makers raise prices. This put the industry under further strain.”
While parts makers were banned from increasing prices, the government influenced by the strong lobby of carmakers let Iran Khodro and SAIPA, the two main car companies, jack up prices on several occasions.
Pointing to the share of auto industries in the GDP and workforce, Beiglou appealed to the authorities to support the struggling sector. The industry has a 4% share in Iran’s GDP and employs 12% of the total workforce.
He recalled that in the past year parts makers output fell by a whopping 70% compared to the year earlier while 140,000 workers were laid off as companies folded and filed for insolvency.
Extensive Demand
He listed four measures that can help the industry weather the storm. “Release the €844 million loan promised to the sector months ago, let parts makers increase prices, offer the firms a two-year tax holiday and create an efficient and reliable channel for the forex needs of parts industry.”
In February, to help rescue the local auto industry, the Central Bank of Iran agreed to lend €844 million to the two main car companies, Iran Khodro and SAIPA.
Over the past weeks, carmakers and the CBI have been at each other’s throats unable to get their act together over technicalities, namely the repayment mechanism.
The CBI initially was against such a loan to the dysfunctional and arrogant carmakers that have long earned the wrath of car buyers for low quality and high prices.
Experts argue that given the economic headwinds the nation is facing due to the new US sanctions, scarce forex reserves should not be lavished on an unreliable and repentant car industry that never seems to make a profit despite jacking up prices to levels never ever seen before in the history of Iran’s auto industry and keep on begging for money to stay afloat. All this to the utter detriment of car buyers.
With President Hassan Rouhani’s personal intervention, the CBI relented and agreed to lend IKCO and SAIPA €844 million to import auto parts and raw material.
But the CBI placed its own conditions for the loan which the car companies rejected. One of the points of contention between the CBI and car companies is the rate at which the forex loan must be repaid.
CBI insists that the loan should be repaid at the exchange rate valid of the repayment date. Carmakers say they want to repay at the rates at which they had borrowed. So far there has been solution to the deep disagreements nd it is not clear which side would relent first.
Another Loan
Earlier and as per a directive issued by First Vice President E’shaq Jahangiri, 12 banks were told to lend $333 million to the failing IKCO and SAIPA. The rescue package was to help car companies pay some of their mounting debt to local parts makers.
Earlier in a talk with Mehr, Beiglou provided some details about the loans. He said over the past four months automakers have not paid parts makers a dime. The two main car companies are sinking in red ink and “owe local parts manufacturers some 140-150 trillion rials ($1-1.1 billion).”
At the press meeting Beiglou said that the car companies had received the loan and used the entire $333 million to repay a part of their outstanding debt.
It is not clear how and when the inefficient and malfunctioning car companies will repay the loans to the government that is trying to plug deep holes in its own budget and curb spending.
Forex Allocation
During the conference, Beiglou pointed to an earlier agreement between parts makers and the government as per which the former were to receive subsidized hard currency.
“We were to get USD at the subsidized rate of 85,000 rials. However we are required to buy the greenback at 120,000 rials.”
The higher rate is still significantly lower than the open market rates. The USD was traded at 140,000 rials in Tehran on Wednesday.
Beiglou is of the opinion that an efficient forex allocation mechanism can help parts makers survive.
