Iran's Auto Industry Repeats Deregulation Mantra

EghtesadOnline: The head of Iranian Automakers Guild has called for deregulation of the auto market and move towards freeing price mechanisms to help boost the car market's competitiveness.

News ID: ۷۷۵۷۸۰

27 April 2017

Ahmad Nematbakhsh told state TV, “Competition Council should allow automakers to set the prices of their vehicles.”

During the last meeting of the so-called Competition Council, it was decided that the council continue with its responsibility of setting vehicle prices so long as the domestic auto industry remains a monopoly of a few major companies.

Recently several experts and businesses have pushed the argument in favor of deregulation and free markets for one of the key industries in Iran, according to Financial Tribune.

Experts argue that a free market economy, wherein the prices of goods and services are set by the forces of demand and supply without government interference, contributes to competitiveness and strength of private enterprise as the locomotive of growth.

In line with the same argument, they insist that lack of a free business environment and stringent regulations imposed by the government plus the unhelpful role and influence of state bodies and conglomerates has harmed enthusiasm for private sector investment, namely in car manufacturing.

Rise in the Prices

Nematbakhsh said, “Guild members are waiting for the council's approval to announce new prices for local productions.”

The slight increase that buyers see in the market is "due to the rise in auto ownership transfer fees and charges for number plate registration.”

Official data said earlier this month that the government made 5.5 trillion rials ($146.5 million) from services related to the transfer of vehicle ownership in the first 11 months of the past fiscal (ended March 20). This accounted for 0.6% of the total government income from taxes.

Tax from issuing number plates reached 9.2 trillion rials ($245 million) or 1.1% of the entire tax revenue.

The guild official outlined several other factors which have affected the production costs. “Wages in the auto industry have increased 14.5%.”

He also noted that the price for raw materials has also increased. "Iran’s largest steel producer, the Mobarakeh Steel Complex in Isfahan  — the main supplier of steel used by local automakers — increased prices up to 20% and by extension other suppliers have done the same.”

According to Nematbakhsh, during the last fiscal although the council issued permission for automakers to increase car prices in Q1, automakers suspended the process un until Q3.

“Automakers are endeavoring to increase profits by improving productivity, cost-cutting and increasing output. However, in some cases, increasing car prices is inevitable for manufacturers to avoid falling in red ink.”

Annual Production

During the TV interview, Nematbakhsh claimed that last year vehicle production increased 40% compared to the year before. He added that during the period 1.35 million vehicles were produced by domestic companies.

“Iranian automakers are aiming to produce 1.6 million cars this year, which will mark an 18% year-on-year growth."

Nematbakhsh echoed earlier comments by the Deputy Minister of Industries, Mining, and Trade Mansour Moazemi, who compared last year's output with the year before saying “We witnessed a 41% year-on-year growth.”

According to Nematbakhsh, Iran Standard and Quality Inspection Company has extended its auto safety and quality checklist that now includes 26 new barometers in addition to the previous 55.

“The production of cars that do not pass the tests will be halted.”

Export Data

The administration had set the goal of exporting cars worth $500 million in the last calendar year. According to Nematbakhsh local automakers were  able to reach half the number.

"The guild is trying to boost exports and at least reach last year’s target."

Iranian carmakers are export mainly to Azerbaijan, Iraq, Syria and Venezuela.

The senior guild member elaborated on Iranian automakers joint ventures with international firms like Peugeot and Volkswagen.

The partnerships are in line with guidelines of the Ministry of the Industries, he said, adding that the ministry requires 30% of the cars produced through the JVs to be exported with the help of the foreign partner's international sales network.