Iranian MPs Put Plan Into Motion to Deregulate Auto Market

EghtesadOnline: Iranian parliament members in step with the government are moving ahead with a proposed plan to relax state sway on the country's auto market, a move aimed at removing the car price caps that are currently in place for mid-range vehicles.

News ID: ۷۴۵۸۵۶

12 August 2018

A member of the Majlis special committee for privatization told reporters on Tuesday that by the end of the current fiscal (March 2019), the government will no longer exercise control over the price of vehicles, adding that the administration is moving toward "free competition in the auto market" and as such, "we are revising the rules on price-setting in the sector," Mehr News Agency reported.

During a recent meeting at the Parliament, attended by auto industry insiders and reporters, Hamidreza Fouladgar said as per Article 44 of the Constitution, the Competition Council should function merely as a supervisory entity without direct authority over car prices.

The council, headed by Reza Shiva, 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 ($10,714) or lower, according to Financial Tribune.

For years car producers and auto parts makers have been calling on the government and the Parliament to allow supply and demand, along with free competition in the market, to determine the price of vehicles.

The new development, if not later reversed, can bear immense significance for manufacturers and parts makers, which have for long raised objections to the government's intervention in the market.

The makers claim that the government-mandated prices had led to substantial debts for car producers which were "forced to offer vehicles at low prices."

Moreover, firms state that prescriptive policies had created an extensive gap between cars' factory and market prices, an opportunity abused by dealers who sell vehicles in the market at much higher prices than those imposed by the Competition Council.

However, critics of the move have raised the alarm that in case carmakers are given free rein over the market, firms will jack up prices exorbitantly, making cars unaffordable for average Iranians.

>Privatization Agenda

Article 44 of the Constitution calls for decentralizing state enterprises through privatization of major state-owned companies and decreasing government role in regulating the market.

It has been more than a decade since the privatization agenda was put forward by the highest authorities in the country, but the progress has been slow.

Major Iranian automotive companies Iran Khodro and SAIPA are semi-state owned and major state bodies own high stakes in the firms.

Part of the privatization objective pursues free competition in the auto sector to promote the quality of vehicles and calls on the manufacturers to spend more money on R&D.

Lawmaker Fouladgar says under the Article 44, the Competition Council should only supervise the prices set by different sectors, including the car industry.

According to him, a committee made of automakers, suppliers and other related entities will be formed to take charge of setting prices of vehicles and the Competition Council will continue work in another capacity, serving as a supervisor which can settle disputes in the committee.

>Deregulation Push

The government is relinquishing control over prices in various sectors. Following US President Donald Trump's pullout from the historic Iran nuclear deal, the dollar exchange rate hit unprecedented highs, which prompted the government of President Hassan Rouhani to unify the rate at 42,000 rials.

The move proved disastrous for the country's economy over time, driving prices up, creating goods scarcity and leading to a revised policy which is currently allowing supply and demand determine the dollar exchange rate.

After the administration gave some wiggle room to the foreign currency rate, authorities have seemingly decided to no longer put a cap on the price of vehicles given the raging inflation which has excessively increased production costs, in a bid to prevent more bankruptcies in the key auto sector. Dozens of auto parts factories have shut down and laid off around 70,000 workers.

Auto industry insiders are optimistic that government's newly-adopted hands-off approach can help salvage the sector in the long run. However, Iranians, whose hopes during recent weeks have been ravished by foreign pressure and imprudent government policies, are following the unraveling drama with wary minds. Many are speculating that, at the end of the day, the latest automotive decision could help makers to have a field day but average consumers will be at the losing end of the bargain.