Parliamentary Probe Into Soaring Car Prices in Iran

EghtesadOnline: After the public outrage over soaring prices of locally manufactured cars prodded the Iranian Parliament to summon the directors of Iran's largest automotive companies and the deputy minister of industries, during a hearing on Sunday makers and government officials tried to vindicate the latest market developments.

News ID: ۷۸۲۷۷۵

30 May 2018

Car manufacturers and auto part makers defended the soaring prices of vehicles during the session held on Sunday afternoon.

Iran Khodro and SAIPA, the country's largest carmakers, attributed the spike in auto prices to the fluctuations in the foreign exchange market and the rising inflation rate. Suppliers blamed the increase in the price of raw material, reported IRIB News.

Lawmakers say forex fluctuations and inflation are two separate issues and the impact of each on the prices needs to be investigated, according to Financial Tribune.

Eventually, it was decided that another meeting will be held next week on Tuesday for car manufacturers to present in-depth price analysis of cars conducted by a commission formed by the representatives of various players in the field.

The meeting was held with the presence of SAIPA and IKCO directors Mohsen Qasem Jahroudi and Hashem Yekezareh and Deputy Industries Minister Mohsen Salehinia, in addition to representatives of auto part makers and importers' associations.

The notable absence of Industries Minister Mohammad Shariatmadari was censured and his presence was demanded for the next week's meeting.

>Looming Redundancies

SAIPA officials lamented "surplus employees" as another reason for the price increases. The carmaker put the number of the excess manpower at an outstanding 11,000.

Personnel compensation costs are one of the major issues facing carmakers. Letting go of the employees can add to the current unemployment predicament the country faces.

Another problem debated during the session was the interest rates on the bank loans granted to carmakers. The interest rate is 24%, which makes it s tough task for the business owners to pay off.

>Official Intervention

In addition to the scheduled meeting next Tuesday to further mull over the recent price hikes, the Majlis will discuss and put to vote a plan aiming to monitor and moderate the country's turbulent auto market within the next week.

Hamid Garmabi, a member of the parliament's industries commission, says it is very likely that import tariffs on the hybrid vehicles to be reduced, reported Mehr News Agency.

Garmabi is of the opinion that the country needs to lower tariff rates for cars or scrap the customs duties altogether.

He added, "Considering the damages caused by fuel-intensive high-pollutant vehicles to the public's health and the environment, and the subsidy on gasoline the government provides, replacing these vehicles [with foreign cars] is economically viable."

According to the lawmaker, supporting the domestic auto industry has always been at the expense of the general public.

"Iran is among the countries with the highest auto import tariffs. If such draconian rates were imposed on other goods in support of local production, they would have flourished. However, we see that Iran's auto sector is lagging behind rivals horrendously."

The lawmaker is concerned over the effects of the hiking car prices on the low-income strata, stressing the need for compensatory measures.

Garmabi continued, "If authorities insist on increasing tariff rates, not only will it compromise consumer rights, but it will also remove the goading force that can push Iranian carmakers toward manufacturing quality vehicles."

>Avarice

Before Sunday's meeting, Nader Qazipour talked to reporters on Iran Khodro and SAIPA's most recent "misconduct".

He said the two manufacturers have hoarded thousands of vehicles which must be distributed immediately.

Last week the parliament member broke the news that IKCO has stockpiled 30,000 vehicles while SAIPA has done the same with 60,000 units.

Qazipour said carmakers have produced the said vehicles receiving subsidized currency from the government at the rate of 32,000 rials to the US dollar. With the dollar-rial exchange rate unified at 42,000, the carmakers are now hoping to sell the cars at excessively higher prices.

While reports had indicated that the parliamentarians were to grill carmakers over hoarding vehicles in the Sunday session, the issue was never raised, according to lawmaker Javad Hosseinikia.

Car prices have increased by 6-22% in recent weeks and carmakers are floating the idea of marking up the prices another 30% to make up for the increase in raw material prices, higher wages and forex fluctuations.

Since last December, the foreign exchange market has been in a volatile state as the US dollar exchange rate jumped to unprecedented levels several times before the government of President Hassan Rouhani stepped in and unified the rate at 42,000 rials last month to put an end to the raging market.

While the industries minister says the prices of local cars are not to be raised more than 9.6%, the auto market has already observed 20% hikes in some cases.