Will Car Lotteries End?

EghtesadOnline: Industries, Mining and Trade Minister Reza Fatemi-Amin has announced that car lotteries will be ended in the next Iranian year (starting March 21).

News ID: ۷۸۷۵۰۸

26 December 2021

“The demand for cars in the country is 1.5 million vehicles. As 1 million vehicles are set to be produced this year, we will have a shortage of 500,000 cars, which will be compensated next year,” Fatemi-Amin was quoted as saying by Tasnim News Agency.

“As per the plans, we are going to increase car production and supply it in proportion to the demand. As a result, the car lottery will be eliminated in the next Iranian year,” he added.

Car Lottery a Temporary Solution

Following this announcement, Tejarat News interviewed Saeed Madani, the former CEO of SAIPA Company, on this issue.

Madani believes that the car lottery is a temporary solution for addressing the high demand for cars.

The official noted that despite the rise in car factory prices, there is a big difference between the factory and market prices.

“Under the current circumstances, the elimination of the lottery at the beginning of the fiscal 2022-21 is unlikely. This price difference motivates people to register for a car [in the car lottery], even if they do not need one. As long as the current pricing system persists, demand will remain high, which can be addressed through a lottery, which is a temporary solution,” he said.

Market Price Regulation

With the 18% hike in car prices, the difference between the car’s factory and market prices has reduced.

Madani said pricing should be based on supply and demand, and under such a situation, people will be incentivized to purchase automobiles and this will eliminate the high volume of rents in the market.

“Even if 500,000 cars are produced in the next Iranian year, it should be done alongside [adjusting] the pricing system. Automakers can produce this number of cars. If the liquidity of automakers is provided, production will increase,” he added.

According to one of the basic rules of the economy, if demand is lower than production, the prices of automotive products will decline, which process will regulate the market price. Under such a condition, carmakers will employ other ways of selling their products.

Impact of Lottery Elimination

The official said as long as there is a price difference between the factory and market prices of cars, the lottery’s elimination will not solve any problem.

“If the car lottery is eliminated, automakers must find a way to sell their products to real consumers. This is while automakers have tried different ways [of selling cars] but they weren’t successful,” he said.

The total number of cars offered in the lottery is less than one million vehicles per year, but about 40 million people register in the scheme, indicating that the lottery has not been successful.

Madani stated that it is possible that the Industries, Mining and Trade Ministry could decide to cancel the lottery for this reason.

The car lottery is believed to be a failed policy by many experts and some people call it the “national lottery” because it creates rents in the market.

Profitable car transactions in the past have created false demand in the car market such that in the current Iranian year’s first six months (March 21-Sept. 22), 35 million people participated in the lottery of Iran’s major car manufacturers, Iran Khodro and SAIPA.

Some industry players believe the situation will not improve, due to the pressures exerted on automakers by the Consumers and Producers Protection Organization to supply cars at a reasonable price.

Instead of implementing such pricing control policies, car manufacturers should be forced to deliver cars for which they have received prepayments and are committed to deliver. In this way, the car market will be organized automatically and the current turmoil in the market will subside.

In the car lotteries, people sign with their ID to get one chance of getting a car, for which they need to pay the company’s price within three days. However, many register to buy a car at a lower price and sell it in the market at a higher price.

According to experts, the only way to get rid of lotteries is by producing cars based on supply and demand, and eliminating price controls.