Gov’t Seeking Way Out for Beleaguered Auto Industry

EghtesadOnline: Iran’s Industries Ministry is preparing a support plan for the hard-pressed auto industry in a bid to salvage the key sector from plunging into further disarray which can hit thousands with unemployment.

News ID: ۷۸۳۸۳۵

28 August 2018

Amir Hossein Qanaei, a top official with the Industries Ministry, says the government is prepared to financially support car manufacturers and auto parts makers at this time of volatility and uncertainty, SHATA, a news agency affiliated with the ministry, reported.

Qanaei says all the necessary resources for the industry’s survival have been considered, adding, “The details of the package will soon be released.”

The plan envisages procurement of raw materials and foreign currency for the businesses, according to Financial Tribune.

In a recent interview with ILNA, Deputy Industries Minister Mohsen Salehinia talked about increasing the limit to government incentives for the industry by 100 trillion rials or $1.19 billion according to the free market exchange rate of 84,363 rials for each USD.

Chaotic Market

The troubled auto market is going down a dark path as prices of budget vehicles have grown exponentially.

Sunday saw the price of the cheapest Iran-made car Pride 111 reach 380 million rials ($4,526), and all models jumping at least 20 million rials ($238) in the span of the one day.

Lawmaker Reza Alizadeh believes the Competition Council’s latest statement that they are set to sanction an uncustomary second round of annual price increases have led to the most recent jump in car prices.

Alizadeh, infuriated by the council’s statement, told ISNA that the state body should not have made the yet-to-be-made decision public.

The council, headed by Reza Shiva, 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 ($5,360) or lower.

Market insiders believe the council’s move to green-light a second round of price rises is the beginning of a free car market.

For years car producers and auto parts makers have been calling on the government and the Parliament to allow supply and demand, along with free competition in the market, to determine the price of vehicles.

Bottlenecked Production

During the first four months of the current fiscal which started in March, Iranian automakers manufactured 436,136 cars and commercial vehicles, down 0.1% from last year’s 436,413 units.

According to the data released by the Industries Ministry, car production has declined 0.2% compared to the same period last year dropping to 410,722.

A few months back a parliament member revealed that carmakers have been hoarding vehicles in their warehouses, waiting for prices to rise. It later came to light that the apparently stockpiled cars are in fact incomplete units which cannot be finished due to a shortage of auto parts.

The number of such vehicles has since reached 70,000 from the earlier reported tally of 50,000, and according to the head of the Iranian Specialized Manufactures of Auto Parts Association Mohammad Reza Najafimanesh, the number will only grow.

Questioned by a reporter on why auto parts makers had not prepared for such circumstances, Najafimanesh says, “Four months ago we asked for a $2.5 billion government support [package for the supply chain]. After much debate, the administration assigned $1 billion, which was not nearly enough to cover necessary expenses.”

According to Najafimanesh, carmakers are now forced to produce vehicles that cannot be sold since they are not complete.

The head of the association traces the issue back to defective government policies which hampered imports ahead of the reimposition of US sanctions.

Following US President Donald Trump’s withdrawal from the 2015 multi-nation Iran nuclear deal which pushed up the USD rate to unprecedented highs, the government of President Hassan Rouhani tried to curb the outflow of foreign currency by restricting imports.

The bureaucracy inherent in such restrictions became a key factor in bottlenecking the supply of auto parts even before US sanctions against Iran’s automotive industries took effect earlier this month.

Najafimanesh says if they can secure enough parts, the cars do not even need to be returned to production lines and can be completed right where they are and subsequently be offered to the public.