Upsurge in Car Prices Batters Iran Auto Market Hard

EghtesadOnline: A new wave of higher car prices has arrived; pushing decent rides further out of average Iranians' reach and helping avaricious dealers make another quick buck at the expense of customers. This is while some public figures have rushed in to calm down the market saying that nothing is out of the ordinary.

News ID: ۷۸۳۵۴۰

04 August 2018

With the US dollar exchange rate on a runaway bullish run, most market observers expected the tumultuous rates have a knock-on effect on the auto market, as it did on Monday when mid-range vehicles saw a 3-6% hike in their prices while the value of high-end models jumped by 13% compared to a day earlier.

In the span of a single day, locally designed sedan model Dena+ saw a 13.3% price jump and is now sold at 850 million rials ($19,300), Peugeot 207's 13.09% rise places the vehicle's price at 950 million rials ($21,600), and Sandero Stepway's 10.47% jump has put the car's price above the one billion rials mark at 1.05 billion rials ($23,860), Tasnim News Agency reported.

Mid-range vehicles have seen lower price increases, one instance being the Samand LX which has gone from 460 million rials ($10,450) to 475 million rials ($10,800), up 3.2%, Financial Tribune reported.

Moreover, the Peugeot 405 experienced a 4.5% leap from 550 ($12,500) to 575 million rials ($13,000) and the Peugeot 206 which saw a 6% price rise and currently changes hands at 610 million rials ($14,520).

>Empty Reassurances

On the same day that car prices observed such a dramatic surge in Iran, Deputy Industries Minister Mansour Moazami stated that "the auto market is relatively calm."

Moazami told reporters that in the first quarter of the year which began on March 21, Iran has enjoyed a 9.8% year-on-year increase in its automotive output.

Furthermore, the official adamantly believes that foreign firms working with Iranian automakers have fulfilled their obligations, asserting that "nothing special has happened" and there is no obstacle in the way of car production until the end of the year.

Moazami says car prices have increased 7.6% from the beginning of the year (March 21) and added, "Car manufacturers are asking for higher prices, but the Competition Council is against it."

The Competition Council is a state body that keeps an eye on many domestic products, including cars, and sets prices for some goods including vehicles costing 450 million rials ($10,227) or lower.

While the Competition Council oversees cars' factory prices, the market operates more in line with the reality on the ground, and the reality according to Iran's Vehicle Manufacturers Association is that the price of raw materials has jumped more than 100% in the past three years, and the industry will collapse in the coming months if prices do not get a reality check.

The secretary for Iran's Vehicle Manufacturers Association, Ahmad Nematbakhsh, says they have drafted a letter to Industries Minister Mohammad Shariatmadari, asking him to allow car manufacturers to sell products in accordance with the market price as an alternative to the factory prices imposed by the Competition Council.

The letter maintains that by allowing carmakers sell cars at actual prices, middlemen will no longer make hundreds of dollars out of the price gap between the factory price and the market value of the cars and the measure can seal corruption loopholes.

Nematbakhsh also pointed to the government policy which lowered bank interest rates months ago, prompting the people to withdraw their savings from financial initiations and purchase houses, gold coins, dollar and vehicles, disrupting each market one after another by upsetting the balance between supply and demand.

>Unreasonable Expectations

One auto industry insider says if the government fails to allocate foreign currency to auto parts makers, it would be overoptimistic to expect the wheels of the industry to keep turning for even two months.

A member of Iranian Specialized Manufactures of Auto Parts Association's directorate, Omid Rezaei, says further car price surges are not unlikely given the government's ill-advised monetary policies.

Following US President Donald Trump's withdrawal from the historic 2015 Iran nuclear deal, the USD rate hit unprecedented highs and prompted the government to establish a system for the allocation of subsidized currency.

Businesses are not allowed to supply their foreign currency needs from the gray market and have to go through government bureaucracy before being allocated hard currency, which is excessively time-consuming and on several occasions firms have reported that they have not been provided with the hard currencies essential to sustaining their businesses.

Rezaei hopes the administration will revise its monetary policies and allow imports to go on smoothly in accordance with the free market forex rate before the industry falls apart as a whole and millions of people lose their jobs.

Many observers are hoping against hope that skyrocketing prices might prompt the government to revisit its monetary policies and allow importers to supply their currency needs from the free market.

Parts makers are not the only entities distressed by the current state of affairs. According to the head of the Tire Industry Association of Iran Mohammadreza Taqiganji, the country's tire factories have enough raw materials to continue production only for 10 to 20 days before they are forced to shut down their facilities.