Iran Auto Parts Industry Under the Cosh

EghtesadOnline: Few days after the introduction of government's new forex policy, local parts makers have expressed deep concern over the fate of their business.

News ID: ۷۸۳۶۵۴

12 August 2018

Parts makers are of the opinion that the updated policy can do more harm than good to the beleaguered sector, wrote local automotive website Asbe Bokhar.

The newly appointed Central Bank of Iran governor Abdolnasser Hemmati announced the latest state monetary policies last week, as a means to heal the hobbled forex market, by putting forward a rescue policy as per which the government no longer grants subsidized US dollars at the exchange rate of 42,000 rials to imported items, except for essential goods and medicines. Auto parts and the raw materials used by local manufacturers are not considered essential.

Under the new policy, importers of products listed as non-essential, need to purchase foreign currency from a secondary market regulated by CBI at prices negotiated with suppliers, Financial Tribune reported.

"Following the implementation of the new monetary policy, a hike of 80% to 140% in prices of auto parts is foreseeable; a number formerly standing at 35%," commented speaker of Iranian Specialized Manufactures of Auto Parts Association Arash Mohebinejad.

>Outstanding Debt

The association's speaker also noted that the plunging value of the rial is not the only matter troubling the business and that the government should pay due attention to other economic problems.

According to Mohebinejad, carmakers and distributors "owe an outstanding debt of 150 trillion rials [$3.5 billion] to parts makers from which 50 trillion rials ($1.1 billion) are overdue."

He further said that due to the chaotic state of affairs, 100 domestic parts making units have either closed their production facilities or put their business on hold.

Three months ago, US President Donald Trump pulled the country out of the landmark Iran nuclear pact creating an unfavorably volatile situation in various markets. Since then, the value of the rial has plunged to unprecedented lows, wreaking havoc on the import-dependent industries.

The weight of the matter at hand convinced parliamentarians to establish a specialized faction, supporting the parts makers' guild. The faction's board of directors consists of two male members from the Industries and Mines Committee, and two women from the parliament's social panel.

>Early Missteps

The initial step taken by the government to curb the damage was to unify the USD exchange rate at 42,000 rials. Importers were required to register their foreign currency needs on the Forex Deals Integrated System dubbed "Nima".

Nevertheless, the plan proved to have failed in that it paved the way for profiteers to gain mindboggling amounts of wealth.

Furthermore, in order to preserve national foreign currency reserves, the government banned the import of 1,339 items declared as luxuries the country cannot afford to buy from foreign firms which also have domestic equivalents. The goods included cars.

The recently introduced government monetary policy raised hopes among auto importing companies that had anticipated eagerly that the bans would be lifted. However, the Industries Ministry poured cold water on them when it announced the ban on auto imports had been extended.