Car Buyers: Let Competition Prevail

EghtesadOnline: Car buyers in Iran support privatization and a free market approach to the key industry and oppose generous state and government subsidies for the inefficient sector, a survey conducted by Iran Standard and Quality Inspection Company showed.

News ID: ۷۴۶۵۵۵

27 January 2019

The survey was conducted on the sidelines of Tehran Auto Show 2019 (Jan. 8-11) where 1024 people were polled, ISQI reported on its website. ISQI is a private company that conducts monthly auto quality and safety tests on behalf of the Ministry of Industries.

Almost 90% of the participants were men, they had academic education and their average age was 34.

They were questioned about the chaos in auto industry and market, and what could and should be done to get the limping sector back on its feet, Financial Tribune reported.

According to the results, 47.4% of the participants said they fully back a free car market where supply and demand determine prices. They said the government’s decades-old and overgenerous support for state-owned car companies must be drastically reduced and the controversial ban on auto imports must end sooner rather than later.

The auto market in Iran is heavily regulated. Government sets car prices and provides the two biggest automakers financial support that is the envy of most international car companies.

After the rial tanked in the summer of last year and currency prices went through the roof, the government rushed to ban auto imports in June. The rare restriction has been extended to the next fiscal that begins in March.

Following US President Donald Trump’s decision in May to pull out of the historic Iran nuclear deal and re-sanction Tehran, the national currency plunged to unprecedented lows.

In the process, foreign currency became a precious commodity and there was not enough of it to continue importing goods like in the past, namely expensive foreign cars.

Privatization

Some 26.9% of those polled said privatization is pivotal for overhauling the underperforming and lethargic auto industry.

In the past few years, privatizing loss-making state-owned companies has been a hot topic in the political-economic corridors in Iran. However, due to mismanagement and, in some cases, corruption in government bodies, the privatization process gradually became controversial and failed to deliver the desired results.

The country’s largest auto companies, Iran Khodro and SAIPA, are often referred to as state-owned by industry observers, the medi and the general public. But the two firms prefer to claim that they have been partially privatized. However, because the privatization process has not been as transparent as would be expected, the two companies’ claims cannot be confirmed.

While most respondents support market competition and privatization (74.3%), 15.2% said the government should increase its support for the struggling auto industries.

The least number in the opinion poll belonged to those who said the only way ahead is by forging closer interaction between academia and industries.

Ten percent of those questioned said the auto industries’ investment in R&D should increase and meaningful ties must be established between the key auto sector and research institutions.

According to UNESCO, the ratio of R&D spending to GDP in Iran is a pitiful 0.4%. The government contributes 56% of the total investment for R&D, universities give 33% and the private sector 11%. Because almost all prominent universities are state-owned, the lion’s share of investment thus far comes from the government, directly or otherwise.

Chaotic Market

Participants were also questioned about the strange pattern in car prices and the high and rising trend that have shocked even the most optimistic economic experts and hardcore government supporters.

Over the past few months, car prices have been climbing as never before. The major companies have jacked up prices up to 50% and more on several occasions just in the past few weeks.

In response to this question, 45.3% of those surveyed again said they support free market mechanisms adding that the auto import ban should be reversed and capabilities of local carmakers must be enhanced.

ISQI said 25.7% of the participants were of the opinion that the chaotic car market can be calmed if Iran’s normal economic ties with the world are restored and foreign carmakers come back.

Major international auto companies, including Renault, Peugeot, and Citroen have decades-old ties with Iran. However, almost all of them left after the US imposed new sanctions.

In a rather nationalistic tone, 18.1% said by relying on homegrown capabilities the auto industry can weather the economic storm caused by the unending US hostility and pressure tactics the likes of which have been unseen in the past several decades.

This is while 10.9% of those questioned opined that Iran would do better by closing down its heavily loss-making, mismanaged and labor-intensive car industry. They said it would make economic sense if car companies are shown the door and the domestic needs are met via imports.

Parts Makers

This round of the annual auto exhibition focused on local parts makers and their capabilities. In line with the expo’s theme, ISQI questioned visitors about their priority when buying spare parts.

As expected, 52.5% said quality is their highest priority regardless of the origin of the product or the makers' name and brand.

Close to 16.3% said they are normally concerned about after-sales service and guarantees offered by the makers when buying auto parts, while 10.6% said they pick spare parts based on the brand name.

Some 8.1% said their past experience in buying parts is key in picking an item while 5.9% said their decisions are  highly affected by advertisement. Another 4.7% noted that they refer to their mechanics and their recommendations when buying spares and 1.9% said prices play an important role when buying parts for their cars.