Gray Imports and Iran Auto Market

EghtesadOnline: Last winter authorities in Tehran in an unexpected move put an end to gray imports of vehicles depriving the sector of almost half the resources and channels used for auto imports.

News ID: ۷۷۷۳۲۲

01 July 2017

Gray imports of vehicles are new or used motor vehicles and motorcycles legally imported from another country through channels other than the manufacturer’s official distribution system.

According to the head of Iran’s Auto Importers Association, Farhad Ehteshamzad, during the last fiscal year that ended in March, 50% of the cars entering Iran were imported by such businesses.

Overall, imported vehicles had a 5.7% share in the local market during the period, according to the latest statistics provided by the Ministry of Industries, Mining, and Trade.

Gray auto imports or the term “parallel imports” as used by some professionals, frequently occur when the price of an item is significantly higher in one country than another. They are sold outside the normal distribution channels by entities which may have no relationship with the producer of the goods, Financial Tribune reported.

Gray importers do not disrupt official representatives’ operations, however, they offer the same products in the market, boosting competitiveness and providing the customer with more purchasing options.

But by putting an end to gray imports of vehicles, authorities have ignored both the positive impact of the presence of gray importers as well as their importance to the auto market.

History of Legal Hurdles

Eight years ago, parliament passed a law which required all auto importers to provide after-sales services. According to law every Iranian passport holder was allowed to import vehicles.

In 2013, the laws were updated and the number of people allowed to import vehicles was narrowed down to holders of business licenses issued by the Iran Chamber of Commerce, Industries and Mines.

Furthermore, gray importers were allowed to bring and sell cars that already had after-sales service centers offered by official representatives selling those vehicles, so people could buy spare parts legally and not have to import them.

They were also required to pay 3% of the value of the car to the official representative of the foreign firm. After paying the fee, the official representative was obliged to offer after sales services to the owner of the imported vehicle.

However, in January 2017, the Ministry of Industries put an end to the practice and barred individuals and independent importers from importing vehicles into the country. With the unusual move, some 100 businesses went bust overnight and 2,000 people were looking for work.

Ehteshamzad says, “The presence of gray vehicle importers boosted competition and banning them has created a monopoly that is obviously neither good for customers nor for investors interested in auto market.”

The association is now lobbying with the ministry to let the gray guys back into business.