Iran Gov't Extends $333m Loan for 2 Major Carmakers

EghtesadOnline: The government will lend money to two local auto companies, Iran Khodro and SAIPA, to the tune of 40 trillion rials ($333 million). The bailout is for paying part of the carmakers’ mounting debt to local parts makers.

News ID: ۷۴۶۶۶۰

10 February 2019

In a talk with Mehr News Agency, the secretary of Iran Auto Parts Manufacturers Association (IAPMA), Maziar Beiglou, provided some details about the loans.

Beiglou said over the past four months automakers have not paid parts makers a dime. The two major car companies are sinking in red ink and “owe local parts manufacturers some 140 to 150 trillion rials ($1.16-1.25 billion).”

“SAIPA and IKCO each will receive 20 trillion rials ($166.5 million) in new loans from the government.”

As per an initial agreement between the two main automakers and the government, 85% of the money is for paying the ballooning debt to parts makers. However, with pressure from the local auto parts supply chain, the struggling car companies agreed to use the entire 40 trillion rials ($333 million) to repay a part of their outstanding debt, according to Financial Tribune.

Beiglou says the money will not be given to car companies directly. “The firms are required to introduce parts makers to banks and mention the amounts owed them.”

“By Feb. 19 and with help from banks the 40 trillion rials  will be delivered to parts manufacturers.”

It was not clear how and when the grossly inefficient and malfunctioning car companies will repay the new loans to the government that is trying to plug deep holes in its own budget and curb spending.

Beiglou said the government may also offer a forex loan worth 70 trillion rials ($583 million) to domestic car companies.

A Failing and Ailing Sector

For years the successive governments have come under fire for their strange and seemingly unending financial support for auto companies infamous for mismanagement, market manipulation, high prices and low quality.

Turning a deaf ear to the growing public criticism and the wrath of car buyers, the Tehran government is set to lavish scarce national resources on the failing and ailing auto industry whose future is under a big question mark.

Since US President Donald Trump re-sanctioned Iran last year, the national currency tanked plunging to unprecedented lows.

Due to the unjust US restrictions and mismanagement, Iran’s limping auto industry is facing very difficult times and it is feared that things will get much worse before they get better.

Output at IKCO and SAIPA has plummeted significantly and many firms in the auto parts sector have been forced to shut down.

According to one informed source, Arash Mohebinejad, after the new US sanctions were imposed, an estimated  100,000 people lost their job in the auto industry.

Reportedly, the newest loans are one more unjustified attempt by the government to save the carmakers from going bust and save thousands of jobs.

However, independent observers say this or other such lending simply cannot and will not save the visibly broken auto industry that is riddled with corrupt and rent-seeking management and where meritocracy is absent for a very long time.

Many say that the pattern of bailouts has never made a difference for the better and must end sooner rather than later.

Industry Overview

During the nine months to December domestic auto output plunged to 763,519 cars and commercial vehicles -- a 31% year-on-year decline.

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

A closer look at the numbers indicates bigger challenges are in store for the sector whose problems are growing at terrific speed instead of the quality of its products.

During the past quarter that ended in December, car production halved compared to the year before with output plummeting to 167,907 cars from 391,801 a year earlier — down 57% YoY.

IKCO and SAIPA are in disarray, to say the least, with both reporting 35.4% and 30.3% decline in output.

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 shows IKCO produced 327,792 cars during the period – down 35.8%.

Last December the firm’s output sank further, from 65,769 last year to 19,372 cars, a 70.5% year-on-year drop and its daily output plummeted from 2,192 cars to 645 units.

That company’s main rival SAIPA is also struggling and facing an uphill battle. Over the nine-month period, SAIPA made 328,355 cars and commercial vehicles, -- a 30.3% decline compared to the 471,405 units made during the corresponding period last year.

In the month ending Dec. 21, SAIPA reported 75.9% fall in output with 15,572 cars and commercial vehicles. Daily production of the second largest carmaker dwindled from 2,156 to 519.