Car Prices in Iran: Chaotic Auto Market and Finger-Pointing

EghtesadOnline: With car prices hiking north of 30% over the past three weeks in Iran, local media and officialdom have rushed in to lay the blame at the feet of auto dealers and online marketplaces.

News ID: ۷۴۷۲۳۶

05 May 2019

Since Washington imposed new sanctions against Tehran last summer, car prices—just like the cost of every other commodity—have been on an upward trajectory.

In the latest round of media frenzy over skyrocketing car prices, online marketplaces were branded as “dealers’ lair” by local news outlets for jacking up prices on an hourly basis.

Reportedly, hubristic dealers create numerous accounts on online sale websites like Divar, Sheypoor and Bama for posting several ads for a single vehicle in which the same car is priced differently. Then they fake sales and repost adverts about the same car again with higher prices. Unaware of the iniquitous process, costumers believe that the costs are actually soaring and rush in to buy vehicles at whatsoever price and as soon as possible, according to Financial Tribune.

Over the past few days, so as to wash their hand of the scandal-smeared auto market, online services have cracked down on “suspicious car adverts” by removing them from their platforms. They have also barred users from posting ads that include prices.

Show of Action

The cheapest vehicle in the Iranian market is SAIPA’s small car named Pride, which is now sold for 550 million rials ($3,870) after a 50-million-rial ($350) price hike over the past week.

A sedan model made by Iran Khodro, Samand, changes hands for 1 billion rials ($6,800). The same car would not have fetched 860 million rials ($5,850) a month earlier.

Following the sharp 30% surge in vehicle prices over the past three weeks, government officials and parliamentarians have rushed in to calm market turmoil and save face with the general public by putting up a show of “decisive” action, with MPs blaming car companies and Market Regulation Organization calling on people to boycott the auto market.

Yaser Raigani, spokesman of the organization (a judiciary-affiliated body dealing with trading offenses), told Tasnim News Agency, “We are calling on the people to stop buying cars for now. The market is ruled by profiteering dealers who are charging people horrendous sums.”

Two MPs threatened to impeach the industries minister, Reza Rahmani, if he does not come up with a solution for controlling the car market.

Nader Qazipour, who represents Urmia in Majlis, told ICANA last week, “If car prices are not controlled, the parliament will impeach the industries minister.”

This was not the first time an MP called for the impeachment of Rahmani who heads the government body in charge of regulating the car market.

Qazipour was echoing a similar threat voiced by Amir Khojasteh, an MP from Hamedan, who last week said, “In a meeting with lawmakers last week, the industries minister promised to propose measures for curbing car prices. If he fails to deliver, he will be impeached.”

Khojasteh alleged that the Industries Ministry is hand in gloves with car companies and dealers.

“It should take action and control both the car market and prices. The government has, indeed, created an environment in which dealers and profiteers are thriving,” he added.

In addition to censuring government inaction, MPs and local media have pointed fingers at the local car companies and their dysfunctional strategies. The local firms have also been accused of hoarding and market manipulation. Authorities are yet to confirm such accusations.

Fundamental Factors

Over the past few weeks, with the Iranian national currency hurtling downward and the US dollar once again gathering a bullish pace, prices hiked in most local markets.

On April 5, the USD was traded at 135,000 rials in Tehran’s market. On Saturday morning, its exchange rate was 148,000 rials—a solid 9.6% increase.

The rial has lost some 70% of its value against hard currencies over the past 12 months, especially after the imposition of harsh US sanctions against Tehran.

Amid economic tensions fueled by an inflation rate unseen in recent memory, Iranians have been converting their savings into hard currencies and safe haven assets, including gold coins and cars.

With raw materials and auto parts supply getting bottlenecked, the car production rate has plummeted sharply in Iran while demand for cars soared. In the last fiscal year (ended March 20, 2019), a total of 955,923 cars and commercial vehicles were produced in Iran, indicating a 37.8% year-on-year decline. The disproportionate supply and demand have further added fuel to the raging chaos in the market.

Independent observers are of the opinion that policing markets and cracking down on dealers and online marketplaces would not change the fundamental economic and political factors that have impaired the economy and disrupted Iran’s trade and banking ties with the world.

Historically, in the face of surging inflation and market disorder, Iranian officials resort to populist rhetoric and go on an over-regulating frenzy. Experience has shown that such policies would further exacerbate the economic woes.