700,000 Jobs Threatened in Iran Auto Industry

EghtesadOnline: If the Iranian government does not offer the local auto industries an aid package to the tune of 70 trillion rials ($466 million) soon, over 700,000 workers employed in the key sector will join the dole queue, the secretary of Iran Auto Parts Manufacturers Association claimed.

News ID: ۷۴۷۳۳۶

14 May 2019

Maziar Beiglou also told local news website Asre Khodro, “During the closing months of the last fiscal year [that ended on March 20, 2019], the Central Bank of Iran promised to provide parts companies with aid packages to the tune of 110 trillion rials ($733 million), of which only $266 have been paid.”

He claimed that if the remaining 70 trillion rials ($466 million) are not paid in the coming days, the firms will suffer a financial crisis.

According to Beiglou, many parts makers will be forced to close their production lines and fire workers in droves, stressing that the crisis will have a domino effect on car companies, Financial Tribune reported.

“If immediate action is not taken by the officials, over 550,000 people employed in the auto part companies and 150,000 working for automakers will be laid off,” he said.

Continuing the same grim spiel, Beiglou said such a crisis in the auto sector will disrupt the Iranian economy as a whole.

“Over 800,000 people work in the key sector. The auto industry accounts for 10% of Iran's GDP and 4% of the country’s workforce,” he said.

The official noted that letters have been sent to CBI Governor Abdolnasser Hemmati in this regard and threatened to “send the same documents to the press to appeal for public support”, if the monetary authority does not take action.

People have lamented the constant car price hikes they blame on car manufacturers.

Hard-Pressed Sector

Following the US President Donald Trump’s decision last year to pull the country out of Iran nuclear deal and impose new sanctions against Tehran, the Iranian economy has tanked.

The national currency, the rial, has lost about 70% of its value since then and prices of almost all goods have soared to unprecedented highs. The greenback was traded at 150,000 rials in Tehran’s Monday morning—it hardly fetched 420,000 rials a year earlier.

The sanctions have disrupted Iran’s banking and industrial ties with the world. These have restricted the supply of raw materials, which has been manifested in the declining output of Iranian factories.

The key auto sector is one of the Iranian industries directly targeted by US sanctions that compelled European partners, including Renault, Peugeot, Citroen, Volvo and Daimler, to suspend their operations in Iran.

Chinese carmakers with ties to Tehran have also downsized their activities there.

In addition to disruptions in auto part imports and foreign partnerships, the Iranian car industry has been struggling against “homegrown” headwinds.

Long blamed by experts, automotive firms’ incompetence in coming up with strategies to sustain their operations and faulty government policies vis-à-vis allocation of hard currencies for imports and over-regulation have derailed the sector and placed it on a road that will lead to the outright bankruptcy of automakers.

Declining Output

The latest data of Iranian automotive companies show their output plummeted to new lows in the first month of the current Iranian year (started March 21).

Industries Ministry’s data indicate that Iran produced 40,602 cars and 2,021 commercial vehicles in the month, registering a 47.2% decline compared with a combined output of 80,794 units in the corresponding month of the year before.

During the month, car production plummeted 47.1% from last year’s 76,807 cars.

Commercial vehicle production also registered a 49.3% year-on-year decline, as the number of trucks, buses, minibuses and pickups fell significantly from the previous year’s 3,987 units.

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.

While some may dismiss Beiglou’s bleak overstatement about the prevailing situation as an attempt to push the government for providing parts makers with financial support, experts believe that even such a huge aid stimulus may not be enough to save Iran’s auto sector from facing a total crash in the coming months.