Iranian car importers have run into an insurmountable brick wall, facing a total ban as per a directive signed on June 20 by the industries minister and officially announced two days later.
In the face of the abrupt decision, head of Iran's Auto Importers Association says that due to the sudden imposition of the restriction, the country's auto market is heading toward uncharted territories and prices are certain to spiral out of control.
With indubitable losses to be inflicted on firms and the public, in an interview with Financial Tribune, Farhad Ehteshamzad called on authorities "to provide importers with a wind-down period so as to enable them to meet their current commitments and mitigate the upcoming losses."
"The decision has been made behind closed doors. Businesses were also left in the dark and firms received the news simultaneously with the public. We have not been provided with any further details," he noted.
Ehteshamzad points out that, importers have made commitments to deliver goods inside the country and they also have forged agreements with their foreign partners. According to him, the decision has disrupted their activities altogether, emphasizing his call on the government to provide the firms with a reprieve even for a limited window of time.
Members of the association held an emergency meeting on June 24 to come up with plans to curb the losses and the ban's impact.
On a conciliatory note, Ehteshamzad said the association and its members perceive that the current restrictions have been introduced so as to preserve national interests and firms will do their best to fall in line with state policies.
Furthermore, pointing to the recent withdrawal of the United States from the historic Iran nuclear deal, Ehteshamzad says, "Iranian businesspeople have been mustering all their resources to cushion the downgrading impact of the upcoming sanctions. However, the government's abrupt decision has disrupted all the endeavors."
According to the data released by Islamic Republic of Iran Customs Administration, during the past fiscal, which ended on March 21, importers brought cars with the total value of $1.45 billion into Iran indicating an 8.02% year-on-year decline.
Ripple Effect
Prices of imported cars are sure to spike in the coming days pushing the vehicles further out of the reach of average Iranians. Ehteshamzad further says, "The decision will disrupt Iran's auto market and the impact will not be limited to the prices of the imported cars."
The association's director is of the opinion that the prices of imported cars will undoubtedly skyrocket, adding that "this will have a domino effect on the value of the locally made vehicles as well."
Market insiders believe that with importers out of way, local makers will exploit the market's upheaval as a pretext to jack up the price of their products as well.
Ehteshamzad also points out that the sudden hike in the price of imported cars and the ban on the imports for good will increase the demand for locally manufactured cars. This will solidify Iranian carmakers ironclad grip over the market.
Unbridled Power
Ehteshamzad also stresses that with dislodging auto imports out of the equation, Iranian carmakers will gain an unbridled monopoly over the market and their lobbying muscles will obtain unprecedented power.
Using the newfound leverage, Iranian automakers will be able to bludgeon the government into pulling the plug on its acclaimed stance over the quality of locally manufactured cars.
Introducing a new automotive standard system which is to go into effect by the end of 2018, the government has announced regulations that call on local makers to upgrade the quality of their products. As per the new guidelines, production of several models is to be halted. While suffering from low quality, the models have been a money printing machine for the makers.
In a separate interview reported by local media, Ehteshamzad noted that auto imports have been a vast source of income for the Iranian government, with tariffs and other costs levied on imports of such goods standing at over and above 100% of the value of the cars.
Collateral Damage
In addition to depriving the government of the easy income, the ban will also impact several related businesses. A group which will definitely get hit hard is scrappage centers.
As per a government ruling, auto importers have been required to scrap 2-8 old cars for each imported unit depending on the vehicles' engine capacity.
Prior to introducing the recent ban, auto imports had gradually gotten limited by the government which had negatively affected the scrappage centers already. Roughly nine out of ten scrappage centers have been forced to shutter their business and the remaining are grasping at straws. The June 20 import restriction will kill the scrap yards owners' business as well.
Sweeping Ban
The recently introduced import restrictions are not limited to cars and the government has barred imports of 1,339 items of commodities categorized as "non-essential goods with equivalents made at home."
As per an official letter by Minister of Industries Mohammad Shariatmadari to Chairman of Trade Promotion Organization of Iran Mojtaba Khosrotaj, orders already registered for imports of these items are no longer valid.
The minister's letter, dated June 20, suggests that the list of banned imports was confirmed and finalized in a meeting of the government's economic team with First Vice President Es'haq Jahangiri on the same day.
In addition to cars, ambulances, tractors, refrigerators and freezers, powdered milk, stoves, ovens, tea and coffeemakers, cameras, tissue paper, cosmetics, clothes and underwear and musical instruments have been prohibited from being imported into the country, among others.
However, according to an assessment by our sister publication Iranian economic daily Donya-e Eqtesad, the commodities included in the newly-unveiled list accounted for less than 8% or $4.04 billion of Iran's overall imports in the last fiscal (March 2017-18), which suggests that even if the government proves to be successful in achieving its goal, the foreign currency saved on the back of such extreme measures would be insignificant.
