Gov’t Intransigence Hammering Domestic Automotive Industry

EghtesadOnline: One of the dire situations the domestic auto industry is facing is the noticeable and increasing presence of low-quality Chinese cars in the market. Industry insiders are of the opinion that the problem is due largely to intransigent and incorrect government policies.

News ID: ۷۴۴۵۰۷

26 November 2017

Director of Arya Kian, a local auto parts making company, Bahram Shahriari says, “Erroneous automotive policies and unreasonably high prices of locally made cars have indeed created fertile ground for Chinese carmakers and helps them grab a significant share of Iran’s auto market,” Eximnews.ir reported.

Without playing with words or indulging in unwanted clichés, Shahriari goes straight to the point. “Wrong government policies are at the core of the problems the auto sector is grappling with.”

Government and affiliated bodies are the main shareholders of Iran Khodro and SAIPA, Iran’s two largest automotive companies. In addition to dictating the two companies general strategies, directors of both companies are appointed by the Ministry of Industries or organizations affiliated to it, Financial Tribune reported.

Both companies are better known for dodgy practices including jacking up prices on short notice and delayed deliveries. Furthermore, most models produced by IKCO and SAIPA stand out for low quality and flouting safety standards. For decades the two conceited firms produce vehicles that would never be considered roadworthy in countries with strict safety and emission rules.

Elaborating his point Shahriari says, “The limited range of cars made by local companies compels car buyers to seek new models.”

Cars like SAIPA Pride and IKCO’s Samand have been manufactured for decades in dull colors and with few options. This is while Chinese companies are offering various vehicles in the market with wider options and with ‘sporty’ looks.

Shahriari is of the opinion that, “Every year that passes the quality of locally manufactured cars deteriorates further while local companies jack up prices. This has made Iran’s auto market an easy target for Chinese firms.”

According to statistics released by the Ministry of Industries 97,937 Chinese cars were assembled in Iran during the first seven months of the current fiscal that  started in March — a 45% year-on-year increase. Chinese derived cars had a 12.6% share of the market during the period. IKCO and SAIPA registered 13.9% and 20% growth rates compared to the Chinese 45% jump Y/Y.

Issue of Infeasibility

Echoing the oft-mentioned complaints of most auto industry experts and observers, the Arya Kian boss says Iran’s auto industry at best is not feasible.  “Low production rates have rendered Iran’s auto industry economically unviable.”

Industrialists and economic experts often point out that each model needs a minimum production rate of 100,000 units if Iranian parts makers want to get involved in the production range.

Should that not be the case, the factory price of locally-produced parts will be over and above their equivalent made in other countries.

Technological Void

“Lack of modern technological infrastructure for designing vehicles has made Iranian carmakers excessively dependent on foreign partners,” Shahriari was quoted as saying.

“Every few years, local auto companies sign joint ventures with foreign firms for the ‘production’ of several models. Then they start importing parts and assembling cars inside the country. Such policies will never lead to Iran emerging as an automaker.”

Iran’s semi-state-owned auto companies are often criticized by informed people for being assemblers because imported parts — including engines and gearboxes — have a huge share in the vehicles they make.