Iranian Carmakers’ Woes Deepen

EghtesadOnline: Major Iranian car companies are grappling with two main problems: lack of auto parts that have caused a sharp decline in production and a failure to clear the piling backlog of car orders they have presold months ago.

News ID: ۷۴۷۳۶۲

19 May 2019

Over the past few months, in a move to calm Iran’s chaotic car market, local automakers Iran Khodro (IKCO) and SAIPA presold over 1 million vehicles.

Following the imposition of harsh US sanctions against Tehran last summer and 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, according to Financial Tribune.

As demand for vehicles soared and dealers began to call the shots in the market, car prices have skyrocketed in Iran. For instance, the price tag of SAIPA’s Pride—the cheapest vehicle in the country—has doubled, jumping to 510 million rials ($3,400) from 210 million rials ($1,400) a year earlier, the Persian daily Donya-e-Eqtesad reported.

The national currency, the rial, lost about 70% of its value and prices of almost all goods have soared to unprecedented highs. The greenback was traded at 150,000 rials in Tehran Saturday morning, though it hardly fetched 42,000 rials a year earlier.

To calm the general public and put up a show of decisiveness, government authorities mandated that IKCO and SAIPA should conduct extensive presales.

So as to meet the government’s demand and earn some much needed revenues for sustaining their operations, the two carmakers introduced schemes whereby over 1 million vehicles were offered via presales.

Squeezed by Sanctions

Many of these cars were to be delivered months ago. However, squeezed by US sanctions and economic woes, the companies have failed to meet their overdue commitments.

The local car companies’ output has plummeted sharply. Iran auto industries used to have strong ties with foreign suppliers and IKCO and SAIPA relied on international makers for key automotive parts.

Washington’s animosity against Tehran, however, has scared off Iranian car companies’ global partners who suspended operations in Iran or downsized their presence in the country.

Some of the automotive firms that withdrew from the Iranian market are Renault, Peugeot, Citroen, Volvo, Daimler and Hyundai.

With sanctions taking a toll on Iran’s international banking relations, local car companies can hardly purchase parts from smaller market players and intermediaries.

As the stockpile of unfinished cars piled up in warehouses for lack of parts, the two companies’ output nosedived and their woes intensified.

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.