Iran: $60m Deal for Auto Localization

EghtesadOnline: Major Iranian automotive companies and 32 parts makers from the private sector signed a $60 million deal on Saturday to curb the auto industry’s reliance on foreign suppliers.

News ID: ۷۴۷۹۵۱

23 July 2019

During an event held on Saturday at Tehran’s International Exhibition Center, which was attended by Industries Minister Reza Rahmani and other officials, Iran Khodro (IKCO) and SAIPA agreed to a deal worth 7.4 trillion rials ($60 million) with 32 small- and medium-sized parts makers to promote auto localization, IRNA reported.

On the sidelines of the ceremony, government officials and the respective heads of IKCO and SAIPA— Hashem Yekezare and Mir Javad Soleimani—and managers of local parts makers discussed ways of indigenizing key auto parts.

As per the agreement, the money will be used for the production of 35 car parts, including gaskets, hydraulic jacks, turbocharger, speakers and amperes, according to Financial Tribune.

Farshad Moqimi, a deputy industries minister, said the listed parts are imported, as they are not produced by domestic manufacturers.

"The local production of 35 auto parts will help curb capital flight to the tune of €85 million annually," he added.

Also addressing the event, Rahmani said, "There are enough potentials and resources inside the country to minimize the dependency of Iran's auto sector on imports. All we have to do is to value and support domestic production."

Rahmani also called for an active participation and contribution to realizing localization goals in the sector, while noting that automakers will be required to present periodic reports on their performance.

"Auto manufacturers and parts makers need to deliver weekly reports on the production rate, the number of cars stored by the companies and more," he added.

Impacts of Sanctions

Pointing to economic hardships facing Iran, Rahmani said everyone should help implement measures for curbing capital flight and preserving national foreign currency reserves.

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

The national currency, the rial, has lost about one-third of its value since then and prices of almost all goods have soared to unprecedented highs. The greenback was traded at 122,000 rials in Tehran’s Monday morning, which 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 is 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 here.

“For making Pride, SAIPA needs to import auto parts worth $1,660 and the production cost of making a single unit of the vehicle amounts to 400 million rials [$3,278],” Rahmani had said earlier.

The minister’s comment implies that imported auto parts have a 50% share in Pride’s production. This is while Iran Automakers Association reported in 2017 that only 13% of its parts need to be imported.

Pride is a small city vehicle produced since 1993 by the second largest local carmaker, SAIPA. According to the company, it has sold over 7 million units of this car in the past quarter-century.

It is the cheapest vehicle made in Iran. SAIPA currently sells the car at 400 million rials ($3,278) and it changes hands for 498 million rials ($4,081) in the open market.