Iran Car Market Cools Down, Prices Retreat

EghtesadOnline: Following the spikes in car prices and a lingering stagnation in the auto market, Deputy Industries Minister Mansour Moazemi is optimistic that the new state forex policy will help alleviate shared concerns of customers and producers over the troubled sector and lead to a drop in prices.

News ID: ۷۸۳۶۳۵

11 August 2018

During an interview with Bultan News, Moazemi said although the total production costs of vehicles will see a minor increase, the public will be able to buy cars at cheaper prices due to the latest government policy to allow producers procure foreign currency on the free market.

The market is already showing slight signs of improvement. On Wednesday, the locally designed sedan model offered by Iran Khodro Samand LX which was last week priced 475 million rials ($11,300) was sold at 461 million rials ($10,970), down 2.9%.

Another IKCO model Dena+, which has been highly sought for during recent weeks, experienced a 9.4% drop in its price a day after the new government forex policy was introduced and now costs 770 million rials ($18,330), Financial Tribune reported.

The popular Peugeot 206 also produced by IKCO has gone back from 610 million rials ($14,520) to 560 million rials ($13,330), down 8.1% from last week.

The recent drop in prices has not however made up for the raging inflation which has sent shockwaves through the car market.

Roots and Remedies

Car price hikes in the past few months have wiped out purchasing vehicles from many Iranians’ to-do-lists at least in the short term as the people seem to always be one step behind the raging prices.

The current exorbitant rise in car prices has both domestic and foreign causes. Following US President Donald Trump’s pullout from the multi-nation nuclear deal, the USD exchange rate hit unprecedented highs in Tehran, which drove up the costs of vehicle production as well.

In response to the wild price jumps, the government of President Hassan Rouhani decided to establish the Forex Deals Integrated System, locally known as Nima, as a platform for importers to declare their currency needs.

While the system would have in theory helped the administration exert oversight over imports, in reality, it turned out to be more a hindrance to imports and gave rise to short supplies in many sectors, including the automotive.

Importers had to submit order registrations in the system to be allocated foreign currency by the Central Bank of Iran only after their request was confirmed in the system.

To curb overregulation and tackle the ramifications of the policy, the newly appointed head of the Central Bank of Iran Abdolnasser Hemmati introduced a new forex policy on … which no longer requires importers to only obtain foreign currency from government channels.

Furthermore, the government has introduced oversight mechanisms to cut the hands of profiteers from the market. In recent weeks, hubristic dealers have also been singled out as one of the major players behind the excessive rise in car prices.

Free Forex Market

As of Tuesday, the government has sanctioned forex trades based on the market price and will no longer prosecute those who trade hard currencies at prices higher than the government-mandated fee.

While the volatile market has not yet settled on a rate, the final rate is estimated to be between 80,000 rials and 90,000 rials.

Mansour Moazemi says the implementation of the new forex policy will ease up the producers’ concerns.

Pointing to the wide gap between factory and market prices of vehicles, Moazemi said, “The new forex policy will calm the market and people will be able to buy cars at lower prices.”

He, however, said with the total production costs on the rise, the final price of vehicles will see a slight increase, but the profiteering practices which came to a head in recent weeks will be eliminated.

Mixed Signals

While it is true that the new government policy has calmed nerves among manufacturers, it was executed simultaneously as US sanctions on the key automotive sector took effect, which can potentially impede imports of auto parts and raw materials and bottleneck production.

The sanctions are not the only thing that will influence prices as rumors of “free competition” in the car market are circulating here and there.

Mehrdad Taqizadeh, an official with the roads ministry, told Mehr News Agency that the country’s approach to price-setting needs to be revised.

He also pointed to car-owning policies in developed countries, saying they sell vehicles at cheap prices but maintenance costs are high, discouraging the public to own personal vehicles.

With the government letting go of price-setting policies in the forex market, rumors are going around that authorities will in the next step authorize free competition in the auto market and allow for supply and demand to take charge of deciding prices.

If government policy, in the long run, is to put a stop to capping car prices, they need to approach the agenda cautiously and take their time with it as cars are no longer the public’s priority with the runaway inflation and sanctions taking their toll on their pockets.