Any successful car pricing reform should narrow the wide gap between a car’s factory and market price.
"It is important to first take actions [and remove this difference], in order to rectify the current situation,” according to a member of the board of directors of the House of Industry, Mines and Commerce.
Arman Khaleqi added that if car manufacturers are not making a profit, should they also sell their vehicles at a loss, Khabar Khodro reported.
“The government should intervene to root out the rise in car prices. The presence of the government in this industry as a policymaker for enforcing market control and pricing is not justified under the circumstances where car manufacturers are producing at a loss. While these companies are considered private, their management is public-oriented,” he said.
Khaleqi noted that if domestic automobile companies are state-owned, the pricing method will cause losses to the treasury, otherwise it will be considered government intervention in the management of private companies.
He called on the government to analyze the reasons for the increase in market price compared to the factory price and announce the result clearly.
"Part of the increase in car prices, according to component manufacturers and automakers, is due to the high prices of raw materials, mainly petrochemicals and steel. This is while the high price of cars cannot be due to the high prices of components,” he said.
“In some cases, based on their contractual obligations, automakers may not accept the rise in price from component makers and the component makers will be forced to sell parts at a loss. In a balanced market, the imposition of losses on component companies would be unacceptable.”
The official stressed that if the sale of parts to automakers does not result in a loss or is supplied in proportion to the final cost, the automakers’ profit must also be included in the final price of the car.
Khaleqi declared that regulators must accept the situation and stop forcing carmakers to sell their vehicles at a loss.
Automakers Seeking Liquidity Boost
Two major auto manufacturers are negotiating with banks to boost liquidity for increasing their production by 260,000 units in the fourth quarter of the current fiscal year (Dec. 22, 2021-March 20), according to a member of the board of directors of the Association of Homogeneous Propulsion Industries and Component Manufacturers.
“Following the change of CEOs of the two major automakers, negotiations have been held with banks to provide 50 trillion rials [$189.39 million] to each of the automakers. This payment will be used to complete the incomplete cars and increase car production. However, so far, no talks have been held with component makers to increase production,” Reza Rezaei was also quoted as saying by Khabar Khodro.
According to the Persian economic daily Donya-e-Eqtesad, SAIPA’s new CEO was appointed on Jan. 12 and the CEO of Iran Khodro Company (IKCO) was replaced on Jan. 29.
Automakers’ Debt to Parts Producers
Liquidity is one of the main problems in the component manufacturers’ supply chain, as domestic auto producers have piled up huge debts.
The domestic auto industry's debts to parts makers have reached 450 trillion rials ($1.45 billion), according to the association’s member of the board.
Rezaei stressed that the massive debts have built up over the years, such that 120 trillion rials ($387 million) of the total only pertain to the previous fiscal year (ended March 2021).
Noting that parts manufacturing companies employ hundreds of thousands of people, the official warned that if the carmakers are not given a loan, the situation could spiral into a crisis, with many people losing their jobs.
Arash Mohebbinejad, secretary of the association – a lobbying arm of the industry and the official debt collector, said if non-payment of debt can be construed a crisis, the chronically indebted Iranian automakers have perpetually been in crisis mode.
After the previous US administration pulled out of the Iran nuclear deal and reimposed crippling sanctions on Tehran in the summer of 2018, the Iranian auto industry's woes worsened.
With nearly a million jobs at stake, the Iranian government has been more or less supportive of automotive businesses.
Last year, the Iranian government and the Central Bank of Iran ratified an auto industry rescue package worth 100 trillion rials ($322.5 million) to help Iran Khodro Company and SAIPA settle their debts to parts makers and boost production, according to media reports.
Mohebbinejad chastised CBI for not being "helpful", claiming that the funds have not been delivered in full to the automakers yet.
"Parts makers were forced to lay off 150,000 workers after sanctions were imposed," he said, stressing that these people are still looking for a job and the situation may deteriorate if nothing is done soon.
