Mandatory Pricing Harming Automakers, SEO Head Says

EghtesadOnline: The managing director of Securities and Exchange Organization in a letter asked the economy minister to reconsider mandatory prices for the auto sector.

News ID: ۷۸۷۱۰۷

04 October 2021

Mohammad Ali Dehqan-Dehnavi said imposing prices by the government puts millions of investors in harm way and urged those in charge to eliminate the policy.

“In terms of market capitalization, the auto and part-making companies are among the top seven industries in the bourse and mandatory pricing is to the detriment of millions of retail investors,” he was quoted as saying by the Securities and Exchange News Agency.

Citing financial statements of the two main automakers Iran Khodro (IKCO) and SAIPA, Dehqan-Dehnavi said the former reported more than 155 trillion rials ($575 million) in net loss and close to 300 trillion rials ($1.1 billio) in accumulated loss in the fiscal year that ended in March 2021.

Likewise, SAIPA, the second largest carmaker, reported 57.6 trillion rials ($213m) in net loss and 150 trillion rials ($555m) in accumulated loss last year.

The senior official linked the piles of losses to “a lack of balance between the percentage of price rises allowed by the regulator and increase in prices of automakers’ input.”

As an example, he said the price of factory input in SAIPA increased on average 248% in the past two years but the Competition Council allowed the company to raise prices by maximum 163%.

The Competition Council determines the selling prices of some domestically produced goods, including cars.

Dehqan-Dehnavi criticized the market regulatory body, saying that “setting auto prices by the council is flawed and lacks efficiency under inflationary conditions”.

Head of the Competition Council Reza Shiva on Sunday defended the pricing mechanism and ascribed the carmakers losses to “misplaced investments”.

“The accumulated losses of carmakers is due to [loss-making] their subsidiaries. The council has not imposed loss on auto manufacturers,” he was quoted as saying by the IRIB website.

The issue in recent months has become a hot button issue among government officials, manufacturers and capital market authorities.  Policy and decision makers argue that imposing price caps help reduce the final price of products in the domestic market and support end consumers.

Opponents say such policies in essence have had the opposite effect and filled the coffers of avaricious middlemen.

Highlight: In terms of market capitalization, the auto and part-making companies are among the top seven industries in the bourse and mandatory pricing is to the detriment of millions of retail investors