Car Buyers in Iran Get a Raw Deal

EghtesadOnline: Due to the new US sanctions and the economic headwinds, production of poor quality and outdated (but apparently affordable) vehicles like SAIPA’s Pride cannot be banned, head of Iran Standard and Quality Inspection Company (ISQI) says.

News ID: ۷۴۶۴۷۴

13 January 2019

In a talk with ILNA Ashkan Golpaygani said “In light of the harsh restrictions imposed by the United States and the steep decline in the value of the rial, domestic carmakers will certainly not be able to upgrade their vehicles and meet at least some of the new standards demanded by the Institute of Standards and Industrial Research of Iran (ISIRI).”

“However, the basic safety standards introduced in ISIRI’s latest upgrade for the automotive standards must be upheld,” he said.

The new automotive standard, known as the Islamic Republic Car Assessment Program (IRCAP), was due to take effect in January. Industry observers say four models manufactured by IKCO and SAIPA, namely Pride, Tiba, Samand and Peugeot 405, are simply not of the quality that can meet the new standards. ISIRI is yet to take effective action to fully implement the IRCAP, according to Financial Tribune.

Golpaygani says that prior to the introduction of IRCAP “auto standards in Iran went back to 2002.”

Decades-Old Models

“Most vehicles made in Iran are manufactured on platforms designed two decades ago. You can’t expect them to pass higher tests,” the ISQI official said.

Pointing to IRCAP, Golpaygani says ISIRI has been pushing for years for upgrading the old automotive standards.

Explaining the point, he singles out Pride, a small city car made by SAIPA, which is the cheapest vehicle sold in Iran. SAIPA sells the car for 229 million rials ($2,070), but it changes hands for 350 million rials ($3,150) in the market!

Without playing with words Golpaygani said, “Pride has not passed the new automotive standards. However, we cannot say that its production must be banned. We obviously need to consider the national [economic] conditions. Large sections of the society can [only] afford Pride.”

After the historic Iran nuclear deal was implemented in 2016, Iranian carmakers built closer ties with foreign firms and were on track to manufacture high quality vehicles. However all their efforts were derailed soon after US President Donald Trump tore up the international nuclear agreement and re-sanctioned Tehran in the summer of last year.

“ISIRI is barely focused on enforcing safety standards and has ditched its secondary concerns,” he added.

ISQI conducts monthly quality and safety tests on behalf of the Ministry of Industries. The company has strong ties to the ISIRI.

Not Safe Enough

Hardly 30% of the cars made in Iran can be placed in the acceptable safety category, the Traffic Police chief said in a blunt criticism of local auto companies that are infamous for high prices and poor quality.

“Traffic Police had to fight hard and long for implementation of basic motor vehicle safety standards,” General Taqi Mehri told reporters in December. “Only 30% of cars are safe to drive… We are pushing for higher automotive standards. However, the final decision will be made by the High Council of Standard.”

It was not clear why the seemingly influential council has done close to nothing over the years when car quality had visibly been of the declining order. The council is made up of the sitting president and members of the Cabinet, the attorney general, head of the Department of Environment, head of Iran Chamber of Commerce, and the ISIRI boss.

In elaborating his assessment, the general said, “As per the mandatory auto standards, all domestic companies must install two airbags on their cars. However, to improve the safety of both driver and passengers, this number needs to be revised upwards.”

Traffic Police will continue to demand stricter safety standards, he said. Observers, however, concur that such efforts will ultimately be an exercise in futility. Golpaygani’s latest comments indicate that the observers were right.

Industry Overview

During the nine months to December 2018 Iran’s auto production plunged to 763,519 cars and commercial vehicles -- a 31% year/year drop.

According to the Ministry of Industries data, during the nine months, 713,233 cars were produced, down 31.2% compared to 1,037,374 made during the same period last year. During the period, 50,101 trucks, buses, minibuses, and pickups were made, indicating a 27.4% YoY decline.

Due to the US sanctions Iran’s economy is facing big challenges and the rial has tanked, losing more than 60% of its value this year. The industrial sector is believed to be hit the worst due to its dependence on imports and the increasing reluctance of foreign companies to sell to Iran fearing the wrath of the openly hostile Trump administration.

The two main auto companies, Iran Khodro, and SAIPA are in disarray with both reporting 35.4% and 30.3% declines in production.

During the nine-month period, IKCO’s total production fell from 520,480 cars and commercial vehicles made last year to 335,953 units this year -- a steep 35.4% Y/Y fall. Data has it that IKCO produced 327,792 cars during the period – down 35.8%.

SAIPA too is facing an uphill task. In the nine months, SAIPA made 328,355 cars and commercial vehicles, -- down 30.3% compared to the 471,405 units it sold during the corresponding period last year.