Iranian Carmakers Saddled With $1.4 Billion Debt

EghtesadOnline: Major carmakers Iran Khodro and SAIPA have seen their debt tally with parts makers, banks and financiers build up in the past few months amassing a debt of 200 trillion rials ($1.37 billion), said the secretary of the Specialized Manufactures of Auto Part Association.

News ID: ۷۸۴۲۰۸

16 October 2018

Arash Mohebinejad told ISNA that over the past few months, “Major carmakers’ debts have surpassed the previous amount of 150 trillion rials ($1.03 billion) and has reached 200 trillion rials ($1.37 billion),” a 33% jump.

In recent weeks several meetings were held between carmakers, parts manufacturers and government authorities to find a viable solution out of the industrial and financial impasse. The sessions were in vain and no solution was agreed to help salvage the beleaguered auto industry.

Mohebinejad took stock of the galloping inflation saying that with the rial on a slippery slope, overhead costs of industries have gone up, according to Financial Tribune.

“Parts makers are bearing the brunt of the economic hardships the industry is facing because prices of auto parts have not been increased for years.”

This is while over the past six months domestic carmakers have already increased prices once and are in talks with the government to again raise prices.

Independent market observers are at a loss to understand why all the domestic carmakers (producing substandard vehicles) raise prices at short intervals and still continue to sink in red ink. Where is the problem and who is responsible remains unclear. The very few “explanations” that some managers offer to the media are considered by the majority of the people as something close to nonsense.

“To save the auto parts industry, prices need to increase significantly. Authorities and carmakers have agreed to raise the prices of some auto parts.”

Since the beginning of the current fiscal in March, the national currency has lost more than 75% of its value against the US dollar. On Saturday, the greenback was traded at 147,000 rials in the gray market.

To counter the economic headwinds, Mohebinejad says that the government should introduce rescue packages for the parts makers and provide them with hard currency and raw materials at subsidized rates.

He says, “Over the past few months, and due to the economic challenges, several parts makers have been forced to shut their factories and lay off more than 150,000 people. If the situation does not improve another 100,000 will soon join the dole queues.”

> Presold Cars

Due to the inflation over the past months, the common people anxious about losing their life’s savings and desperate in wanting to turn their cash into safe-haven assets, joined the sales schemes of carmakers.

Through the schemes, more than 100,000 cars were presold by IKCO and SAIPA with methods that many market observers condemned as outrageous, unfair and unjust. The two car companies charged people more than 200 million rials per car, for vehicles which are to be delivered in late 2019.

Simple arithmetic shows that IKCO and SAIPA earned at least 20 trillion rials ($138 million) through their presales.

It merits mention that the carmakers have not put a final price on the presold vehicles which means they have the liberty to charge whatever prices they want at the time of delivery—a practice unseen and unheard of in any other part of the world.

Pointing to the extensive presales, Mohebinejad says, “Producing parts needed for manufacturing the presold vehicles needs 60 trillion rials ($414 million).”

Elaborating the point, he noted, “Only if auto parts imports are facilitated and the parts supply chain is funded appropriately, the presold vehicles can be manufactured.”

Some of the parts required for making the cars must be imported.

The senior auto industry official noted that imports of auto parts have been facing huge problems over the past months. He accused the customs administration of nepotism and inefficiency saying that some companies have been able to clear their goods rapidly while auto parts are stuck in the warehouses of the Islamic Republic of Iran Customs Administration.

An estimated 20,000 unfinished cars are gathering dust in car factories simply because they do not have some parts needed to prepare the vehicles for the market. “If auto parts import is eased such vehicles can be ready for sale in a few weeks.