The Ministry of Industry, Mining and Trade is set to propose a new notion for selling government shares in two major auto companies, namely Iran Khodro Co. (IKCO) and SAIPA, the Economy Minister Ehsan Khandouzi said.
"Divesture of government shares in car companies demands an informed and effective plan that should ensure the future survival of the companies," he was quoted by Economy Ministry's news outlet as saying at a meeting with auto industry experts and market stakeholders.
According to official reports, the government has a 14.04% share in IKCO and 23% in SAIPA. In July, the Minister of Industries Reza Fatemi-Amin said the privatization of the reportedly loss-making SAIPA and Iran Khodro (IKCO) were in the final stages.
However, independent observers insist the government’s share in the two giant companies is much bigger simply because state agencies through their subsidiaries and front companies also own their shares.
Economists, industrialists and market observers insist that the unending problems of the failing auto companies is more about mismanagement and less about ownership per se. In other words, the ownership of shares of such firms’ has shifted from the government to state-affiliated institutions and organizations, but the government sets production targets and appoints their senior managers – a policy that has been open to censure for years.
Divestiture of government shares in the two major auto companies should pave the way for infusion of much-needed liquidity into the car industry as a whole, says the head of the Auto Parts Makers Association.
“By entrusting the management of the two companies to shareholders and letting the market self-regulate, the losses the industry is saddled with over the years due to government-dictated prices could be gradually compensated,” Mohammad Reza Najafimanesh said.
Auto industry losses resulting from price diktats is estimated at 1,200 trillion rials (almost $3.36 billion).
Secretary of the same association, Arash Mohebbinejad, said that the government pricing policy has created a disturbing rent-seeking culture and entrenched corruption.
“Those who over the years bought cars directly from factories only to sell in the free market are estimated to have profited 2,500 trillion rials ($7.02 billion).”
Dubious Practices
There is a wide gap between factory and market prices of cars in Iran, a fact that has lured many avaricious middlemen to the unhealthy trade in the hope of making a fast buck.
“Another problem we face is the shortage in parts. At present auto part makers have the capacity to manufacture parts for nearly 2.2 million cars but some 77% of this capacity is utilized. We need to take a closer look at this issue to see what is depriving us from using the capacity to the optimum.”
Ali Nabavi, head of the Industrial Development and Renovation Organization of Iran (IDRO) believes even if the private sector owned and managed the two major auto companies, with the strange pricing policies they would still be in the loss-making category.
“The only [possible] difference could be that the loss may be less. Such problems are not limited to auto industry alone. They are rooted in government interference and managerial issues.”
Auto market expert and university lecturer, Amirhossein Kakayi, says that for proper divestiture of government shares transparency of aims and frameworks along the production and supply chains is paramount.
“We need to make policies for healthy competition and set clear regulatory standards. Balanced tariffs have to be defined along the chain and credibility criteria. This is doable if all relevant organizations and decision-makers do their fair share.”
