New Wave of Car Price Hikes on Horizon in Iran

EghtesadOnline: Despite a prolonged stagnation in Iran's auto market due to skyrocketing prices which have bewildered buyers and put the brakes on auto deals, local parts makers have signaled another wave of price jumps.

News ID: ۷۴۵۷۳۶

29 July 2018

Suppliers, displeased with their fortunes and in the face of surging production costs and the current raging inflation rate, are not satisfied with the already exorbitant car prices and have yet again called on authorities to give the go-ahead to the carmakers to jack up car prices once more. Suppliers argue that higher car prices would enable automakers to pay their outstanding debts to them.

Iranians' race against the bullish prices in the auto market has come to a halt as the public has altogether abandoned car trades, with owners seeing their vehicles as an investment and many considering cars as a luxury they can no longer afford.

Simultaneously as the people are struggling to eke out a living and grappling with the galloping inflation, auto part makers have drafted a letter directed at President Hassan Rouhani himself, asking the top authority to dispense with the government-imposed automotive price caps, Financial Tribune reported.

Appealing to the "president's wisdom", the letter signed by Mohammad Reza Najafimanesh, head of Iranian Specialized Manufactures of Auto Parts Association reads, "Over 550,000 are directly employed by Iran's auto parts industry and the sector has created some three million indirect jobs… Not letting car prices increase in accordance with the inflation rate will be detrimental to carmakers and by extension to the auto parts industry."

The letter maintains that the Competition Council's authority over the market needs to be scrapped. The council is a state body that keeps an eye on many domestic products, including cars, and sets prices for some goods including vehicles costing 450 million rials ($10,227) or lower.

The association also reports that major Iranian carmaker "SAIPA has suffered a 20 trillion rials loss ($476 million) in spite of growing production output."

US sanctions against Iran's key automotive sector will kick in on August 6. As the fateful day approached, the country's car industry is showing signs of the pressure it has to cope with.

During the first three months of the current fiscal which started on March 20, 336,699 cars and commercial vehicles rolled out of Iranian carmakers' production lines indicating a 9.4% year-on-year increase, yet in the final month of the quarter (May 22 – June 21), the country's automotive output declined by 19.6% compared to the corresponding period of last year.

The auto market has become mostly moribund due to a change in the priorities of the public as all commodities are experiencing unprecedented price hikes, cutting a swath through the purchasing power of many Iranian families.

>Deregulation Package

Under such circumstances, the auto parts makers association is forging a package to be represented to the Rouhani administration in the coming days. The package calls on the government to deregulate Iran's auto market and give makers further leeway in determining prices in return for halting allocation of subsidized currency to the industry.

Najafimanesh told the Persian economic daily Donya-e-Eqtesad that the auto industry is putting together a package to be presented to the government in the near future.

The proposal will suggest that the auto industry no longer receives subsidized currency from the government in exchange for relaxing controls over car prices.

Following US President Donald Trump's withdrawal from the historic 2015 Iran nuclear deal, the dollar exchange rate hit unprecedented highs and prompted the government to provide subsidized currency to businesses to bring raw materials and essential goods into the country.

The subsidized USD rate to rials stands at around 43,000; this is while the greenback is changing hands in the gray market for up to 95,000 rials.

Businesses are not allowed to supply their foreign currency needs from the gray market and have to go through government bureaucracy before being allocated hard currency.

The policy has put the government under mounting pressure, and the auto industry seems to be taking advantage of the circumstances to goad the administration into one of their long-time requests, an unfettered market.

>Rouhani's Stance

While the package had not yet been submitted by the time this report was published, government insiders seem to already be aware of President Rouhani's response.

An unnamed source has told Donya-e-Eqtesad that the president is against the deregulation of the market as it can lead to price jumps that will place cars totally outside the reach of the average Iranians.

This year the Competition Council has allowed a 7.18% increase in car prices but the market has seen consecutive price hikes amounting to a 20-30% surge.

While the advantages of unbridled industrial competition normally outweigh the disadvantages, observers argue that with the sanctions looming and with two carmakers SAIPA and Iran Khodro in control of almost 90% of the market, now is not the right time to give the sector a free hand.