Economy, Business And Markets

Automobile Manufacturers Desperate to Clear Debts

Automobile Manufacturers Desperate to Clear DebtsAutomobile Manufacturers Desperate to Clear Debts

Automotive companies have been clearing some of their long-standing debts to auto part suppliers, even though they have been complaining of being hit by recession and unable to recover their money from customers, a member of the Auto Parts Manufacturers Association of Iran (APMA) told Forsat Emruz newspaper.

For the past two years the Iranian auto industry is going through a series of predicaments. The disruption in automobile manufacturers’ debt management has taken a toll on the auto part companies, leading to major job losses in the sector.

The interminable story of auto companies being debtors to the auto part manufacturers however is not new. The two industries are so intertwined that even a small impediment in one sector poses a threat to the survival of the other.

Ever since the Competition Committee – assigned by the previous government to implement price regulation in the automotive industry since February 2013 – declared that domestic automobiles prices were 40% higher than what they should be, the market’s demand reduced exponentially from 500 billion rials ($14.7 million at market rates) to 50 billion rials ($1.4 million) within only a few months. Moreover, the economic sanctions – imposed by the West over Iran’s nuclear energy program – placed the automotive manufacturers between a rock and a hard place and extended their three-month payback period by three times.

 Debts to Be Settled

The beginning of the current Iranian year (March 21, 2014) seemed to be a fresh opportunity for the auto part manufacturers and carmakers to settle their financial disputes. A member of APMA board of directors, Mohammad Reza Najafi-Manesh told Forsat Emruz that although the creditors are steadily receiving their debts, “the trend is still unsatisfying.”

 According to Najafi-Manesh, APMA is negotiating with the authorities to “hopefully resolve the issue by year’s end (March 20).”

Automobile manufacturers blame the lack of support from banks for the crisis crippling the automotive industry. The previous administration’s vice president had agreed to offer 20 trillion rials ($588 million) loan to the automotive companies to help them settle their debts. The amount was reduced to half by the Money and Credit Council and eventually discarded altogether by the banks.

Despite the lack of cooperation from banks, the manufacturers have managed to pay creditors a huge part of their debts by selling assets or pre-selling their cars, as the CEOs of several auto part companies such as Etehad Motors and Ezam Auto Parts have confirmed.

The APMA official called on the government to assist the auto industry by “breaking its monopoly” and easing the rigorous market regulations that force manufacturers to pay heavy late delivery penalties.  “As car prices have increased while people’s purchasing power has reduced, leasing companies affiliated to the government could also help the sector recover from the current slump,” he noted.

Although the debts are gradually being paid off, there is no way to insure the industry against further threats so long as the sanctions and price regulations by Competition Committee persist.