The strong lobby of Iranian car companies in the parliament is pushing for a new vehicle price hike, with a lawmaker claiming car production costs surpass revenues and another MP calling on the government and banks to offer more loans to the two top carmakers.
MP Abdollah Rezaeian told Tasnim News Agency, “One of SAIPA’s managers have told me that the production of [small car] Pride costs the car company 430 million rials [$2,960]. This is while the firm has been mandated to sell the vehicle for 380 million rials [$2,620].”
The same model changes hands for over 500 million rials ($3,450) in the market.
Rezaeian called on the Competition Council to look into the issue and let SAIPA increase prices if the claim is true.
The Iranian Parliament on Sunday passed a law on regulating the country’s automotive sector months after a turmoil spiked car prices to unprecedented heights.
Rezaeian says, “As per the law, the Competition Council is charged with setting car prices. Industries Ministry has also been charged with regulating the market and cracking down on profiteering practices of dealers.”
According to the MP, the difficulties of importing auto parts are hampering the local car companies.
“Some 30% of parts used in car production need to be imported. Supplying these parts is one of the main issues facing Iran’s auto industry,” he said.
Loss-Making Industry
Rezaeian claimed that “SAIPA has accumulated losses to the tune of 200 trillion rials ($1.8 billion) … Over 800,000 people are employed in Iran’s auto industries and their jobs must be saved.”
With nearly 1 million direct and indirect jobs tied to the auto industry, car companies and officialdom never fail to highlight the employment angle of the struggling industry.
They fend off any call for closing the perennially loss-making automotive companies by threatening that hundreds of thousands of people would join the dole queues.
A few months earlier, local news outlets with strong ties to the car companies claimed that the two largest Iranian automakers Iran Khodro (IKCO) and SAIPA have accumulated losses amounting to 21 trillion rials ($145 million) and 29 trillion rials ($200 million) respectively.
Secretary of Iran Auto Parts Makers Association Maziar Beiglou told a conference in Tehran last week that Iranian auto parts makers have racked up losses exceeding $791 million during the last fiscal year (ended March 20, 2019).
According to Beiglou, following the reimposition of US sanctions last year, the cost of raw materials surged by a massive 250%.
“But the government did not let parts makers raise prices. This has put the industry under further strain,” he said.
However, on several occasions, Industries Minister Reza Rahmani has declared that Iranian automakers are not loss-making.
“By producing certain models, local carmakers may incur losses, but this is not an issue that cannot be resolved through better management of resources,” he said.
More Loans
Another MP Seyyed Javad Hosseini-Kia said IKCO and SAIPA have only one option for offsetting their accumulated losses and that is boosting production.
“And to boost auto production, the Iranian government and banks should provide car companies with aid packages and low- or no-interest loans. The firms should be provided with easy access to hard currencies to import parts direly needed for car production,” he said.
This is while several hefty loan and aid packages have been offered to the car companies in the past.
In February and at the behest of Industries Ministry, the Central Bank of Iran agreed to lend $844 million to help rescue IKCO and SAIPA by allocationg hard currencies. This loan is yet to be paid.
Earlier and as per the 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.
State-owned Bank of Industry and Mine has also committed to offer 4 trillion rials ($30.7 million) in loans to 150 car parts makers working with local car company SAIPA.
Declining Output
The latest data of Iranian automotive companies show their output plummeted to new lows in the first month of the current Iranian year (started March 21).
Industries Ministry’s data indicate that Iran produced 40,602 cars and 2,021 commercial vehicles in the month, registering a 47.2% decline compared with a combined output of 80,794 units in the corresponding month of the year before.
During the month, car production plummeted 47.1% from last year’s 76,807 cars.
Commercial vehicle production also registered a 49.3% year-on-year decline, as the number of trucks, buses, minibuses and pickups fell significantly from the previous year’s 3,987 units.
In the last fiscal year (ended March 20, 2019), a total of 955,923 cars and commercial vehicles were produced in Iran, indicating a 37.8% decline YOY.
