The past several months have been something very close to a nightmare for auto parts makers and understandably so. Layers of red tape, economic headwinds from all four directions plus disturbing changes in government regulations on almost a daily basis is taking a high toll on the beleaguered industry and has slashed their output by half, secretary of the Specialized Manufactures of Auto Part Association says.
Mohammad Reza Najafimanesh told the YJC, “The output of parts makers has declined significantly and if the [economic] conditions do not change, they will be forced to shutter their business.”
He said, “Iranian parts makers are in a precarious situation. They have vast untapped potential but the speed and impact of changing regulations have impeded their business” sending many to the exits.
Retroactive rules and the regulatory tangle have significantly increased the investment risk in Iran and “devastated the private sector’s trust [in institutions]… Add to this the fact that such decisions have triggered sharp increase in prices.”
Without the sine qua non of normal industrial activity, stable regulations and favorable economic conditions, private investors are stuck between a rock and a hard place: trying to preserve a sinking industry, or shutter their business.
Industry sources say by mid-August, the parts makers were forced to cut over 100,000 jobs. Many firms refuse to renew workers contracts and this can only mean that another 150,000 workers could soon join the dole queues.
If the problems are not addressed, a new wave of unemployment must be expected, experts say, voicing serious concern that some half million workers would be without work.
> Beleaguered Industry
Najafimanesh notes that due to the deep problems associated with the supply of raw materials, the production rate of parts makers, and by extension carmakers, has taken a beating in the past few months.
During the five months to Aug. 23, automotive companies made 525,586 cars and commercial vehicles reporting a 9.5% decline compared to the same period last year.
Major carmakers, Iran Khodro and SAIPA have been hard pressed, respectively churning out 227,038 and 229,332 units -- an 18.6% and 4.9% year-on-year decline in production.
As one of the main hurdles, Najafimanesh points to the shocking twists and turns in the forex market, saying that manufacturers can barely find the hard currency crucial for their raw material import.
> Bloated Bureaucracy
While the government's earlier forex policy allocated subsidized currency to auto parts makers for import, it was scrapped and replaced with new rules that require businesses to pay the difference between the subsidized US dollar rate (42,000 rials) and the free market exchange rate (more than three times higher) before they can release their goods from customs warehouses.
The policy has proven disastrous for parts makers who argue that such policy shifts are unwanted, unhelpful and debilitating because they had calculated and sold their goods in accordance with the USD1= 42,000 rial rate.
The Industries Ministry later ruled that auto parts makers should be exempted from paying the difference in the forex rates. However, given the state of affairs of the bureaucracy, that ruling is yet to be implemented.
> Market Regulator
Najafimanesh touched upon market regulations and the ongoing debate about who should be in charge of overseeing prices in the automotive sector, an issue that has long been a bone of contention between state bodies and the industry.
The so-called Competition Council, a government-backed body, monitors prices and in some cases decides prices of local products including cars.
Najafimanesh insists that the council has had an adverse effect on the industry and says experience has it that the Consumer and Producer Protection Organization can do a better job of regulating the auto market. The CPPO was in charge of regulating the sector between 1997 and 2007.
