Carmakers Warned, Again

Carmakers Warned, Again Carmakers Warned, Again

President Hassan Rouhani on Tuesday again called on the huge auto manufacturing industry to wake up from their long slumber and improve their quality, if they want to remain in the increasingly competitive world car market.

"Unlimited and unwavering government support for the auto industry is tantamount to detaching an industry from international competitiveness. This (support) means low quality and high prices," he said at the Third Iran International Automotive Conference in Tehran.

President Rouhani further warned that carmakers should not think government backing for their industry is a permanent fixture.

Decades of support have at times been in the form of "ban on imports and heavy tariffs cannot last forever. Supporting one industry in the face of competition from overseas has a timeframe and should be limited."

Voicing the demand of most Iranian consumers and car buyers, the president said, "What is crucial for us is that our industries must have the necessary (high) quality and the ability to compete."

This was the second time in as many months that Rouhani made a highly critical public assessment of the burgeoning but visibly dysfunctional auto manufacturing industry.

Last year in a live TV interview, he said, "An industry that is more than 50 years old must not expect support from the government."

The government plans to hand over the reins of the auto industry to the private sector, he told the high-profile carmakers' conference.

"The policy of the government is to completely privatize and hand over the auto industry to the people. The government will never make a good manager in industrial sectors, including car manufacturing," Rouhani was quoted as saying by IRNA.

"The car industry needs to be privatized. It must be competitive," he said.

The state currently controls roughly half the sector.

The president unveiled new products of the country's major car manufacturers, Iran Khodro and SAIPA, on the sidelines of the conference.

In September, a domestic campaign emerged in social media to boycott what the organizers called "substandard, unsafe and expensive" Iranian-made cars, highlighting frustration at the lack of choice.

The Rouhani government managed to lure car customers back and ultimately rein in the campaign by offering long-term loans.

The auto industry is second in Iran after oil, accounting for up to 3% of gross domestic product and 12% of jobs.

"What matters is that this sector improve its comparative advantage by manufacturing quality products. Excess state backing for an industry would eliminate competition, resulting in a quality loss and even a price hike," he said.

"The government will never favor the idea of imposing the products of the two carmakers on the nation by blocking imports to dictate a very limited consumer choice, telling the people 'it is what it is,  take it or leave it'."

***First Priority

Rouhani stressed that serving the public interest is the top priority of his government's agenda.

"This government regards addressing the public interest and popular demands as its first priority and legal duty. In view of this, it is obvious that we need to create competition," he said.

Iranian manufacturers hope that the return of foreign partners in the wake of the removal of sanctions last month will help them increase production and improve quality.

The sanctions relief was achieved in return for time-bound curbs on Tehran's nuclear work under a landmark deal with P5+1 (the five permanent members of the UN Security Council plus Germany), which went into effect on July 16.

Rouhani's allies made huge gains in parliamentary elections on Friday that should give the president more scope to push through ambitious plans to modernize Iran's economy.

The large but outdated car sector is one of the most attractive industries to foreign investors who have flocked to Tehran since the sanctions were removed.

France's PSA Peugeot Citroen signed a joint venture agreement with Iran's largest carmaker Iran Khodro in January. The two companies had a strong relationship that was suspended in 2012 due to sanctions.

"We will develop partnership with foreign companies so our manufacturers have a presence in world markets," Rouhani concluded.