$2 Billion Aid Package to Bolster Automotive Industry

EghtesadOnline: The Central Bank of Iran, along with several local banks and government, is set to roll out an aid package worth $2 billion to boost the country’s automotive industry, secretary of Iran Auto Parts Manufacturers Association said.

News ID: ۷۵۰۲۱۴

12 June 2020

Maziar Beiglou added that the financial help is to be provided by the Central Bank of Iran, the state-backed Iranian Mines and Mining Industries Development and Renovation Organization and several private investors, Tasnim News Agency reported.

The money is expected to help the sector expand production and seal their financial gaps, he added.

Beiglou noted that parts makers and auto production companies, which have long been struggling with a budget deficit, are expected to settle their financial issues and sign new contracts to resume work.

According to local reports, major Iranian carmakers, Iran Khodro (IKCO) and SAIPA, have accumulated substantial debts to parts makers.

The carmakers were required to pay off 110 trillion rials ($621.5 million) as part of their debts to parts makers last year. However, they have only cleared 38.5 trillion rials ($217.5 million) so far.

News reports have mentioned contradictory figures, as car manufacturing companies’ unpaid debt owed to parts makers.

In line with the move, the head of National Development Fund of Iran announced during a press conference last week that it is planning to pay a loan worth $1 billion to the country’s parts sector to help overhaul the aging commercial fleet.

Morteza Shahidzadeh added that financial aid would be a driving force for bolstering domestic production.

“Local knowledge-based firms should be involved in the localization of auto parts production and help renew the dilapidated commercial vehicles,” he said.

Automakers Missing Targets

A member of Tehran’s Chamber of Commerce had earlier said Iranian automakers will miss output goals they had set for the current fiscal year (started March 20) amid the US sanctions.

Mohammad Reza Najafimanesh, who also heads IAPMA, said the country’s auto sector will only survive if the government extends help.

After the US reimposed harsh sanctions against Iran in the summer of 2018, almost all foreign partners of Iranian carmakers pulled out of the country after US sanctions targeted Iran’s automotive industries.

Even international auto parts makers with decades-old ties with Iran halted sales to Iranian firms, as the US embargo threatened the former’s access to US markets and disrupted the latter’s international banking relations.

As a result, even if a foreign firm wished to work with domestic companies, Iranian payment for goods and services could not get through. All these have taken a harsh toll on Iran’s auto producers and assemblers.

Buckling under the burden of sanctions, Iran’s auto production has been plummeting since June 2018.

Production Rate

Iran’s automotive output declined by 14.6% during the month ending May 20 compared to a year earlier.

According to a report published by Iran’s Securities and Exchange Organization on Codal.ir, the semi-state Iranian automakers, IKCO and SAIPA, produced 78,190 passenger vehicles during the month, which is 13,436 less than their output a year earlier.

IKCO’s output during the month dropped to 42,168, which is 20% lower than last year’s corresponding month when the company produced 53,083 passenger vehicles.

Besides passenger vehicles, IKCO manufactures commercial vehicles, including vans, pickups, trucks and buses. However, during the period under review, IKCO halted the production lines of several models of commercial vehicles.

IKCO did not release data on the production rate of commercial vehicles and buses.

SAIPA, IKCO’s competitor, produced 36,027 vehicles in the month, marking a significant decline of 6.5% year-on-year, which amounts to 2,516 fewer cars.

Previously, the Industries Ministry regularly published statistics about car production. However, following consecutive declines, the ministry stopped releasing such data.

The current data are extracted from financial statements submitted by automakers to the domestic stock exchange.

Mismanagement and corruption, plus the sharp pressure of US sanctions, have derailed Iran’s auto industries. SAIPA and IKCO have struggled with numerous scandals over the past few months, including the arrest of several managers of the two companies on charges of implementing an unauthorized price hike and committing fraud.

Industry insiders and local media have speculated that the two companies are on the verge of bankruptcy and, as usual, need the government to help bail them out to save thousands of jobs at risk in the chronically dysfunctional automotive companies.