Economy, Business And Markets

Problems Galore in Tire, Motor Oil Sectors

Problems Galore in Tire, Motor Oil SectorsProblems Galore in Tire, Motor Oil Sectors

Tires, tubes and motor oil are some of the commodities in high demand, as Iran’s auto manufacturing industry is one of the biggest economic sectors of the Islamic Republic, after oil and gas, accounting for 10% of GDP and annually producing nearly 700,000 vehicles.

Despite the business potential offered by this sizable market, the tire, tube and motor oil production sectors are ailing.

Foreign products from China, Thailand, Taiwan, Indian and South Korea have cemented a foothold in the market, while domestic producers, suffering from outdated machinery, high costs of raw materials and high taxes are simply unable to compete.

According to Abbas Samavati, the chairman of Iran’s Tire and Motor Oil Sellers Association, over 40% of the association’s 4,000 members have either gone bankrupt or switched to another line of work, the Persian daily Forsat-e Emrooz reported.

This is while domestically-manufactured tires only account for less than 40% of the Iranian market share, while imported and contraband goods hold a substantial portion.

According to the official, high taxes levied on the sector in the past three years is one of the main reasons behind the sector’s downturn.

Furthermore, domestic players are highly dependent on imported raw materials for production.

“Natural and synthetic rubber are the two main materials needed for manufacturing tires, with the former completely imported and the latter produced in small volumes and at a high cost by domestic petrochemical companies,” he said.

Lamenting the quality of domestic products, Samavati said investors are shying away from the sector due to the industry’s outdated production machinery and lack of modern technologies as well as the high costs involved in overhauling the production plants.

The same issues are also prevalent in the motor oil production sector; the oil refining and petrochemical companies cannot keep up with the sector’s demands for raw materials and the machinery used in motor oil production plants are nearly half-a-century old.

“Fewer than half of the country’s motor oil producers adhere to manufacturing standards, while the rest use ‘recycled oil’ for production”–one that has already been used in a car and is now recycled, repackaged and sold as new,” he explained.

Tire tube producers are not faring any better.

According to Mortezaei, managing director of Shahab Tire Asia, the tire tube market is heavily saturated and producers are operating way below their production capacities.

“The overall market demand is about 10 million tire tubes per year. This is while domestic producers annually make over 20 million tubes,” he said.

Mortezaei noted that excessive imports are hurting the ailing market.