Iran Auto Industry in Disarray

EghtesadOnline: The automotive market is mired in a state of limbo as evidenced by a stagnant market fanned by volatile foreign currency exchange rates and instances of up to 20% hikes in car prices.

News ID: ۷۴۵۴۱۳

30 May 2018

Head of Tehran Auto Dealers Association Saeed Motemani says the market has turned highly unpredictable, with no one knowing what tomorrow holds for the industry, reported Asre Khodro.

He said, “Last week when the Competition Council announced it will communicate the new car prices by June 5, costs of vehicles which had experienced a 20 million rials ($476) decrease, took an upward trend and reverted to previous levels.”

The Competition Council, headed by Reza Shiva, is a state body that keeps an eye on a wide range of domestic products and sets prices for some goods including vehicles priced under 450 million rials ($10,700), Financial Tribune reported.

The council is set to ratify new car prices in the early days of June after receiving sectoral inflation rated from the Central Bank of Iran.

Motemani maintains that under such circumstances, he cannot possibly advise the public on purchase or sale since the unstable market confounds any prediction.

“At the same time, distribution of vehicles is hobbled by manufacturers and until they persist in pursuing this path, the auto market will be plagued by irregularities.”

According to him, the market’s needs are supplied by few companies, thereby granting them unfettered control over supply at the expense of customers’ pockets. Should they decide to raise supply, the market will see a decline in prices; otherwise, costs will continue to skyrocket.

Profiteering

The union head drew attention to another aspect of the sluggish industry, the gap between factory and market prices.

Based on his remarks, although car prices have been jacked up by makers up to 10% in recent weeks, there still exists a yawning gap of 40-130 million rials ($950-3,000) between the list price and market price of vehicles.

Pointing to the absence of functioning supervision on carmakers’ conducts, he noted, “For vehicles under 450 million rials ($10,700), the price gap translates into a 70 million rials ($1,660) difference, and the figure reaches 130 million rials for more expensive products.”

Further, he said major Iranian automakers only distribute their products through an exclusive and handpicked group of dealers.

The middlemen claim that some models hit by low demand are sold at their list price or lower; therefore the loss is compensated by charging customers more for other models. Motemani regards the approach as hubristic and illegal and is of the opinion that the price gap needs to be narrowed to 10 million rials ($238).

Authorities Intervene

Industries Minister Mohammad Shariatmadari has already given the green light to a 9.6% increase, and the Competition Council is to set the price cap within the next two weeks.

Prices have already soared, in some cases by 20%, making the public wonder how much more they have to dig in their pockets to get their hands on a vehicle after the officials authorize the hike.

Last week during a meeting with carmakers, suppliers, importers and the industries minister’s representatives, the Iranian Parliament decided to establish a commission to investigate the exorbitant prices.

A second meeting is scheduled for the current week. The parliament will also put to the vote a bill that allows lawmakers to monitor and regulate the auto sector.

There will be much to discuss in the upcoming session as Shariatmadari, who was absent in the previous meeting, has been instructed by parliament members to join the meeting.

Another Pitfall

Furthermore, news has recently emerged that vehicles are not on the list of prioritized commodities for imports, which is certain to hinder the operations of auto importers.

Since last December, the foreign exchange market has been in a state of drastic fluctuations as the US dollar exchange rate jumped to unprecedented levels several times before the government of President Hassan Rouhani stepped in and unified the rate initially at 42,000 rials last month to put an end to the raging market. The rate later was revised upwards to 42,011 rials.

All importers are to submit their order registrations at the Integrated Foreign Currency System (locally known as Nima), to receive US dollar at the official exchange rate of 42,011 rials

The CBI launched Nima to track all forex transactions involving banks, exchange houses, importers and exporters in real time.

If parts and car importers do not receive foreign currencies at the official exchange rate, not only imported vehicles prices will further soar, but so will homegrown ones as they are still dependent on auto parts brought into the country for production.