IKCO-SAIPA Debts Reach $8.8 Billion

EghtesadOnline: By October 2018, the accumulated debts of Iranian carmakers, Iran Khodro (IKCO) and SAIPA, had reached 1 quadrillion rials ($8.8 billion), the industries minister said in a recent interview.

News ID: ۷۴۸۳۴۷

03 September 2019

In a televised interview, the transcript of which was published by IRIB News, Reza Rahmani spoke about the conditions of Iranian car companies when he took the helm of Industries Ministry in October 2018.

“At that time, the two carmakers owed 200 trillion rials [$1.8 billion] to parts manufacturers and their other debts [to banks and insurance companies] had reached 800 trillion rials [$7 billion],” Financial Tribune quoted him as saying.

“The accumulated losses of IKCO and SAIPA had respectively reached 170 and 180 trillion rials ($1.5 billion and $1.6 billion) by that time.”

The minister noted that the condition of Iranian car companies is a “public affront to the Iranian people”.

The two carmakers have launched extensive presales over the past few months, putting hundreds of thousands of cars on offer—which they claim are to be delivered in the near future.

Rahmani announced that the two carmakers collected 240 trillion rials ($2.1 billion) in down payments during the recent presales.

“Some of the presold cars were to be delivered seven months ago. Carmakers have promised to deliver all the presold cars by the end of the current Iranian year [March 2020],” he said.

Workers’ Nightmare

The minister said carmakers were on the verge of a complete shutdown, which the Iranian government could not have allowed to happen since 600,000 to 700,000 jobs are at stake in the industry.

Ali Aslani, an official with Islamic Labor Organization, said, “There are 180 auto parts firms in Alborz Province with 200,000 employees. If IKCO and SAIPA do not pay off their debts to these parts makers, many of these workers will lose their jobs.”

Aslani called such conditions a nightmare for workers.

He claims that during his tenure, structural reforms have taken place in both automotive companies that have sold non-operating assets to pay off their debts to an extent.

Iranian MP Mohammad Reza Mansouri later told reporters, “At present, IKCO and SAIPA’s debt is 800 trillion rials ($7 billion). The carmakers should either sell off their non-operating assets and pay their debts, or file for bankruptcy.”

Over the past year, the Iranian government has come up with various rescue packages— from offering million-dollar loans to offering incentives—to save the two state-affiliated, chronically-indebted and loss-making companies. These costly packages are yet to yield any measurable results yet.

Hard-Pressed Sector

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

The national currency, the rial, has lost about two-thirds of its value since then and prices of almost all goods have soared to unprecedented highs. The greenback was traded at 113,500 rials in Tehran on Monday, though it hardly fetched 42,000 rials a year earlier.

The sanctions have disrupted Iran’s global banking and industrial ties and restricted the supply of raw materials, which are evident 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.

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, the two automotive firms’ incompetence in sustaining their operations, faulty government policies vis-à-vis allocation of hard currencies for imports and over-regulation have derailed the sector and placed them on the road to bankruptcy.