Economy, Auto

Will Gov't Pull Out of Auto Industry?

Will Gov't Pull Out of Auto Industry?Will Gov't Pull Out of Auto Industry?

Iran's President Hassan Rouhani recently stated that the government will not support the local car industry indefinitely.

Speaking at the Third Iran International Automotive Conference in Tehran, Rouhani added that state assistance for the automakers must end at some point, as it makes them uncompetitive and gives rise to low quality cars with high prices.

Donya-e-Eqtesad, Financial Tribune's Persian-language sister newspaper, listed what is currently happening in the industry and which steps the carmakers have taken to prepare themselves for the inevitable financial independence.

Although carmakers are not fully ready for total independence, they have begun to talk with possible foreign actors for long-term cooperation, it said.

The paper quotes industry analysts who say, "As the government currently owns shares in the companies, they ultimately make the important decisions."

Auto managers are currently in positions of power with the government blessing, which shows that it still wields power over their future outlook.

However, the article notes that with the absence of serious critical oversight from independent authorities, the industry has languished.

However, it notes that with the removal of western sanctions on the Islamic Republic and the entry of foreign automakers, there is a chance for the domestic industry to become more competitive over time.

The sale of companies' shares to foreign companies is in line with this objective, the article adds.

Rouhani's position is quite clear and statements like "the government is not a good manager of the auto industry" shines further light on his prospective plans. He noted at the conference that Iran has competent managers who will be able to navigate the automotive industry with greater efficiency.

However, the article notes that some don't believe Rouhani's sincerity about making the industry self-reliant, due to the current structural problems plaguing it.

It states that the government plans to sell the shares of automotive firms to the likes of Peugeot, Renault and others, thus slowly but gradually removing itself from the decision-making process and reducing interference.

But it simply cannot pull out as things currently stand. Other organizations have also said similar things in recent months, with industry insiders and company owners stressing the dire straits they are currently in.


  The Long Picture

Recent deals with Renault and Chinese car companies looking to gain a bigger foothold in the local market pay heed to Rouhani's statements that market economy can replace state administration of the sector.

As foreign makers begin to push their products and agenda in the Iranian market, Iran Khodro and SAIPA alike will be able to work more closely with foreign counterparts and stand on their own feet over the long run.

However, an executive from a public sector car manufacturer told Financial Tribune on condition of anonymity that they have held multiple talks with both local and Chinese partners, which crashed.

The executive said, "We still need financial support from entities like the government to pay our workers' wages."