No More Comfort Zone for Auto Industry

EghtesadOnline: The Central Bank of Iran (CBI) and the Ministry of Industries have jointly issued a mandate that requires automakers to reduce the interest rate offered on pre-sale contracts.

News ID: ۷۷۸۹۱۵

30 August 2017

In order to attract short-term investment, most automakers offer a high interest rate on customers’ down payment prior to receiving their car. In a nutshell, the scheme acts as an incentive for buyers to receive a small discount on their new car.

According to the new rule, interest offered by automakers will be cut to 18% from 25%, Financial Tribune’s sister newspaper Donya-e-Eqtesad reported.

The pre-sold cars are normally delivered in three to 12 months. Moreover, the automakers have a history of not delivering vehicles on time, according to Financial Tribune.

For instance, Iran Khodro is offering Peugeot 206 for 160 million rials ($4,200) in down payment and a 22% interest rate. The car will be delivered in six months and the buyer will pay 17 million rials ($450) less.

However, not all who sign up for a pre-sale contract are “real” car buyers. Many cancel the deal few days before the car is delivered and the carmaker returns their down payment with a  small dividend.

The two major carmakers, Iran Khodro and SAIPA claim that the huge amounts of pre- payments by clients go into production schemes. However, both companies are reportedly sinking in red ink and owe billions in unpaid bills to businesses, contractors and parts suppliers.

According to industry insiders, IKCO and SAIPA owe local parts makers $2.4 billion. Moreover, SAIPA has been forced to borrow from IDRO time and again due to the company’s inefficiency, mismanagement, and woeful financial structure.

According to IDRO chief Mansour Moazzemi, SAIPA owed 8 trillion rials ($2.3 billion) to IDRO back in September 2016 — a sum the company apparently is unable to repay.

The new mandate will come into force in January and is designed to distance investments away from the local dysfunctional auto manufacturing and assembling auto industry and into SMEs.

The ruling comes on the heels of changes in the equally inefficient and debt-infested banking sector.

More than a year has passed since bank deposit rates were officially set at 15%. Last week the regulator set a deadline through a new directive to banks to enforce the lowered rates.

According to the directive, the implementation of which is mandatory from September 2, banks and credit institutions are obliged to uphold long- and short-term deposit rates set at 15% and 10%.

Up until now the interest rates are varied ranging 15% to 22% both in state-owned and private banks all of which have been hunting for clients with big money in the economic climate that is visibly unfriendly to manufactures.