Auto Output Up 21% in 5 Months

EghtesadOnline: Iran’s automotive output increased by 21% during the first five months of the current Iranian year (March 20-Aug. 21) compared to the year-ago period.

News ID: ۷۵۱۰۶۳

22 September 2020

According to data released by the Industries Ministry, a total of 377,000 cars and commercial vehicles were produced in Iran during the five months, which figure was 311,330 year-on-year.

The output of passenger cars saw an 18.4% rise, reaching 344,800 units and the number of pickup trucks reached 31,528, which is 38.4% higher than the 19,500 produced in the same period of last year.

The production rates for vans, buses and minibuses show a 5.9% decrease in output, dropping to 673 units.

Saeed Zarandi, a deputy industries minister, says automakers plan to produce up to 1.2 million vehicles by the current Iranian yearend (March 2021).

Last fiscal year (ended March 19, 2020), domestic automakers produced a total of 927,197 vehicles, 855,000 of which were passenger cars.

Since July, the ministry has resumed the release of auto production reports after a long gap.

Last year, analysts were in the dark, because the ministry stopped releasing auto production data due to consecutive declines. Therefore, the data were extracted from financial statements submitted by automakers to the domestic stock exchange.

Mismanagement, corruption and the pressure of US sanctions, now coupled with the Covid-19 outbreak, have derailed Iran’s auto industries.

SAIPA and IKCO have grappled 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 automotive 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 these chronically dysfunctional companies.

Shrinking Options

The types of cars available to Iranian customers have declined 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 halted sales to Iranian firms, as the US embargo threatened Iran’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 the goods and services could not get through. All these have taken a harsh toll on Iran’s auto producers and assemblers.

Therefore, the production lines of 20 car models have been halted over the past year. Some of the cars assembled in Iran, such as Renault’s Sandero and Sandero Stepway, as well as Suzuki’s Grand Vitara, are no longer rolling out of Iran Khodro.

IKCO also produces Chinese Haima and Dongfeng models, but the company is yet to announce whether it would be able to sustain the production of these models.

The Iranian firm also produces several Peugeot models, including 405 and 206. Reportedly, IKCO will be able to continue the production of 206 and 405 since it has been making them for decades and only relies on foreign suppliers for some key parts.

SAIPA, the other major automaker in Iran, also used to make several models in collaboration with China’s Brilliance Auto Group and South Korea’s Kia, the production of which has stopped.

Pars Khodro, the third main carmaker, has halted the production lines of Renault Sandero and Logan.

South Korea’s Hyundai Motor also had a deal with Iranian private carmaker Kerman Motor to produce Hyundai i10 and i20 in Iran, which partnership has been suspended.

Several other Chinese brands were assembled by private Iranian automakers, such as BYD, Great Wall, MG and Lifan, which have entirely stopped their production activities in Iran.

Bleak Future

Iran’s auto sector was ailing even before US President Donald Trump imposed new economic sanctions in 2018 after pulling out of Iran’s historic nuclear deal.

As expected, the US penalties gradually obstructed the supply of raw materials and auto parts. Foreign carmakers and parts suppliers walked away from the lucrative market fearing Washington’s ire.

Multifarious solutions have been proposed by authorities to minimize the negative impact of Trump’s open animosity and economic war against Iran’s major industries. The proposals led nowhere, as car prices have continued to soar.

The Industries Ministry is in charge of regulating the loss-making car manufacturing industry. Over the decades, the ministry’s thick ties with the undeserving sector and vested interests of some state actors have impeded efforts for undertaking effective reforms.

Corruption scandals involving hundreds of millions of dollars have further tarnished the auto sector’s public image. The scandals have made economic experts and informed observers wonder whether the industry has a future in Iran.

As part of the ministry’s agenda to revitalize the monopolized sector, the localization of parts and technologies has been prioritized by the government and carmakers. However, simultaneously, permits were issued for importing such trivial auto parts as mudguards.

In a 2018 report, reviewing data from the Islamic Republic of Iran Customs Administration, Financial Tribune revealed that such permits had been issued for years. Such data are no longer accessible and it could not be ascertained whether the practice is continuing.