Demand for vehicles in the past four months has increased sixfold than the projected annual output of local car companies for the fiscal 2019-20, Iran’s industries minister says.
“Since the beginning of the current Iranian year [started March 21], there has been demand for 6 million vehicles in Iran’s auto market. This is six times higher than the local car companies’ projected output for the fiscal 2019-20,” Reza Rahmani was quoted as saying by Financial Tribune’s sister publication, Donya-e-Eqtesad.
Explaining the sharp surge in demand for vehicles over the past year, the minister said, “Recent upheavals in Iran’s economy have created false demand in the auto market.”
Rahmani was referring to a ravaging inflation unseen in the history of the Islamic Republic, as its national currency lost close to two-thirds of its value over the past one and a half years following the reimposition of US sanctions against Tehran.
And what he calls “false demand” is a universal reaction to economic upheavals. When the national currency of a country depreciates, or the inflation rate soars to unprecedented highs, people rush in to convert their savings into safe haven assets like gold coins, hard currencies and, in the case of Iran, vehicles.
The Iranian officials’ failure in addressing major issues has turned almost all markets into a hedge against the inflationary wave overwhelming the Iranian economy. The massive inflow of money into safe haven markets has tipped the supply-demand equilibrium, causing a nationwide economic turbulence.
The forex market is broken beyond repair, with authorities introducing new monetary policies to patch up the sector almost every week; the housing market is in shambles with prices hitting record highs, forcing Tehran dwellers to migrate to the capital’s satellite cities like Karaj; while in the auto market, prices change by the hour and are almost always on an upward trajectory.
However, instead of accepting their managerial failings, the officialdom prefers to pile the blame at the feet of dealers and “the gullible people” who fall for the antics of “market manipulators”.
In response to public concerns and criticisms, Iranian state authorities have put out a single narrative: By creating price bubbles, greedy dealers are having a field day and calm will return to markets when their wings are clipped.
Import Reliance
Officials and the local media have also blamed local industries for their “import reliance”, as if in modern industries, firms could operate in a vacuum.
After US President Donald Trump embargoed Iran, the local auto industry’s ties with the global supply chain was almost severed when most automotive partners suspended their Iran operations. This led to a sharp fall in domestic car output.
With raw materials and auto parts supply getting bottlenecked, car production plummeted sharply. 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% year-on-year decline.
Now, the industries minister says, “For making Pride, SAIPA needs to import auto parts worth $1,660 and the production cost of making a single unit of the vehicle amounts to 360 million rials ($2,720).”
Rahmani’s comment implies that imported auto parts have a 61% share in Pride’s production. This is while Iran Automakers Association reported in 2017 that only 13% of its parts need to be imported.
Pride is a small city car produced since 1993 by the second largest local carmaker, SAIPA. According to the company, it has sold over 7 million units of this car in the past quarter-century.
It is the cheapest vehicle made in Iran. SAIPA currently sells the car at 390 million rials ($2,950) and it changes hands at 520 million rials ($4,000) in the open market.
All these official narratives boil down to finding scapegoats and shirking accountability. Hence, Iranians have no choice but to fret and fume, as there is no hope of the automotive prospects improving anytime soon.
