Economy, Auto

Laylaz: Auto Loans Inflationary

Laylaz: Auto Loans InflationaryLaylaz: Auto Loans Inflationary

A well-known Iranian economist has weighed into the debate on the auto loan scheme backed by carmakers and authorities.

Saeed Laylaz added that Iran’s automakers produce over 100,000 vehicles per week and can increase their weekly production to an extra 50,000 cars, if they so wanted, the Persian website Khabar Online reported.

There are other reasons why the loan was cut short so quickly and the reasons authorities have given for the auto loan halt are “not justifiable”, he said.    

According to Laylaz, what has been sold so far is what the auto manufacturers can produce in two weeks and the reason why the plan was cancelled is that they sold more than 110,000 vehicles under the loan scheme, which will ignite inflation, something the government has been gradually cutting since coming to power.  

Laylaz added that the government had introduced this scheme to boost production and help the industry exit recession.

“If the CBI injects more than 2 trillion rials ($57 million at market exchange rate) into the auto industry, it will have an inflationary effect,” he noted, stressing that Iran’s economy is struggling with stagflation and moves like these can help jumpstart the ailing economy.

Buyers were at first offered a range of 21 vehicles produced by Iran Khodro Company and SAIPA, which could purchase with the loans. At first, the auto loan ceiling was set at 250 million rials ($7120 at market exchange rate) with an interest rate of between 16-18%.  

Later, a number of Chinese vehicles manufactured in Iran were also added to the list, in addition to a string of light commercial vehicles

Prior to the loan offering, Laylaz commented that if the government intended to stimulate demand in the auto sector, it should provide buyers with subsidies and loans instead of funding the automakers.

Iran’s economy is facing stagflation, Laylaz noted at the time, so much so that people have lost their purchasing power and prices have increased which, in turn, reduced demand.

“Many Iranians are not even able to afford the bare necessities and must scrape by,” he said, adding that this is particularly true with the seven lowest deciles in terms of income.  

Laylaz went on to say, “Iranians are buying less dairy products and bread; they cannot afford to purchase formula milk for their babies and even electricity and diesel consumption levels have dropped. Naturally, in such a situation, demand for cars will also drop.”