The domestic auto industry faces numerous challenges, the most debilitating of which is protracted disagreements between the government and the Majlis (parliament) over key policy decisions.
Their contradictory stances continue to afflict the sale of cars in the Iran Mercantile Exchange, the import of new and used cars, as well as the difference between the factory and market prices.
Another disagreement pertains to the government’s insistence that automakers must produce Euro 5 vehicles while only Euro 4 gasoline is distributed in the country, Donyaye Khodro reported.
Amirhossein Kakaei, an auto industry expert, said, “We’re not producing Euro 5 gasoline and even Euro 4 gasoline is not widely distributed in the country. But the government has mandated carmakers to produce Euro 5 cars and pursues the production of Euro 4 gasoline [through the National Iranian Oil Refining and Distribution Company]. What happens to all the money that has been spent on producing a Euro 5 car?”
He wondered whether policymakers fully grasp the damage suffered by Euro 5 vehicles when car owners are forced to use Euro 4 gasoline.
Noting that officials do not pay attention to expert opinions, Kakaei said instead of focusing on the main objective, which was to increase production, they present solutions to disguise the main problem.
“Importing used cars and spending 85% of the profit from the sale of cars on the stock exchange are among these mistakes. In the current inflationary situation, this money is being used elsewhere instead of supporting car manufacture,” he said.
The expert stated that the government and the Majlis are aligned politically, but not in terms of policymaking.
“There is a big difference between making a promise and making a policy for the automobile industry. Everyone has their own theory in this industry. One should act scientifically and use expertise. And even if we do not want to act scientifically and insist on operating hypothetically, we should not reach the situation that we are currently in,” he said.
“The hypothesis of these bodies was that command pricing is a good measure and it will control car price and reduce the cost of car manufacturer. However, after five years, they have realized that it is a wrong move and should be halted.”
Regarding the supply of cars on the commodity exchange, Kakaei said, “Many initially believed that it was wrong. However, at present, it is the best way to sell cars in the country, but policymakers did not fully implement it. Cars were supposed to be supplied through IME for six months, but this did not happen and we are witnessing the same disagreement, and the National Competition Council is again implementing its command pricing policies.”
Rising Car Prices Blamed on Higher Cost of Raw Materials
Higher raw material cost is the main reason behind the rising domestic car prices, according to a member of the Board of Directors of the Iran Auto Parts Manufacturers Association.
“Car prices are influenced by numerous factors, including economic conditions and liquidity situation, which are beyond the control of car manufacturers and parts producers. But the 60% increase in the prices of raw materials, such as steel, aluminum, copper and petrochemical products, last year is the main reason behind the increase in the factory prices of domestic vehicles,” Maziar Beiglou was also quoted as saying by Khabar Khodro.
“In addition to this increase, the growth of overhead costs due to electricity and gas outages in parts production units has reduced production and increased the costs of component manufacturers, because calculating the overtime pay of workers increases the overhead cost of each component,” he added.
Commenting on the effect of the skyrocketing foreign exchange rates on the prices of vehicles and parts, the official said, “Considering the high level of self-sufficiency, the rise in foreign exchange rate will not have a direct effect on the prices of raw materials [and on auto parts and cars] and won’t increase prices by more than 20%. But the 60% increase in raw material cost had a direct impact on the prices of components and cars.”
Beiglou noted that importing raw materials such as steel sheets from Russia is cheaper for component manufacturers than procuring them from domestic companies.
Referring to other problems, the official said parts producers sometimes face challenges in procuring raw materials from the commodity stock market when their supply stops.
“However, currently, the most important challenge regarding raw materials is their prices, the growth of which has destroyed the effect of price correction this year,” he said.
“Domestic parts manufacturers have the equipment, machinery, resources and manpower to produce parts for 2.2 million vehicles annually, but this volume of production requires liquidity and overcoming supply network challenges. Therefore, under the current circumstances of raw material supply and liquidity, it is not possible to achieve this production capacity.”
