Local Carmakers Cannot Pay Their Bills

EghtesadOnline: Local carmakers Iran Khodro and SAIPA, are deep in the red owing part makers 230 trillion rials ($1.9 billion) one official with Tehran Chamber of Commerce says.

News ID: ۷۴۹۰۴۱

26 November 2019

Mohammad Reza Najafimanesh tells local automotive website Asbe Bokhar, “Iranian carmakers owe parts manufacturers more than 230 trillion rials [$1.9 billion].”

The parts manufacturers are struggling to finance their operations. “At least part of the debt must be paid immediately.”

Local carmakers have incurred losses to the tune of 100 trillion rials ($833.2 million) in the first half of the current fiscal year (started March), Financial Tribune quoted secretary of Iran Vehicle Makers Association as saying.

According to the official, the condition of car companies has deteriorated over the past few months and the main carmakers Iran Khodro (IKCO) and SAIPA have incurred losses to the tune of 50 trillion rials ($416.6 million) each.

He blamed the government for the chaos in the auto production sector saying if state authorities had allowed car prices to increase sooner, the firms would not have be sinking in red ink now.

This is while both firms have been allowed to raise prices on several occasions. However, it seems their thirst for higher prices for the poor quality they make is insatiable.

Car prices have seen steep rises since last summer. For instance, the cheapest vehicle, Pride -- a small city car made by SAIPA—is now sold for 480 million rials ($4,000). The same car hardly fetched 220 million rials ($1,830) a year ago.

After the US reimposed sanctions last year, Iran’s car industry took a big hit as output fell, spare parts were in short supply and thousands of jobs were lost, particularly in the struggling car parts industry.

Carmakers and their minions love to blame the sanctions for their worsening problems that, indeed, have been around for decades.

Mismanagement and Corruption

However, the people, economic experts and independent observers often single out inherent mismanagement, nepotism and chronic corruption for the decline in the once lucrative industry. Carmakers and their powerful backers have indeed made a bad situation worse.

Iran’s automotive output suffered its sharpest year-on-year decline in 2018 since the 21st century began.

Local companies last year produced 1.34 million cars and commercial vehicles to register a 40% YOY decline, data published on the Organisation Internationale des Constructeurs d’Automobiles’ website (OICA.net) show.

The sector also had a bad year in 2012 when local car output dropped 39%. However, 2018 was the worst for the key auto industry in recent memory. Most market observers and analysts worry that 2019 will be worse as the economic situation deteriorates not the least becasue of the United States open hostility.

In the past decade, 2003 was the worst year for the sector in terms of production when 743,680 vehicles were made.

Iran’s worldwide ranking in terms of the number of vehicles produced has declined. Now the country is the 17th largest carmaker in the world. In 2017, it was 16th.

Last year 851,000 cars and 491,000 commercial vehicles were produced. In 2017, auto output had reached 1.5 million units.