A recent announcement by Iranian car company SAIPA that Kia Motor has halted its operations in Iran brought the role of foreign firms in Iran’s auto sector in sharp focus.
On August 3, SAIPA announced that Kia Motors terminated its Iran operations due to US sanctions. This is while informed sources previously said that the South Korean company had suspended its operations in the country months ago, according to Financial Tribune.
SAIPA has reported on its website, “Just like French car companies, Peugeot and Citroen, and the Chinese automaker Brilliance, Kia has also cut its ties with SAIPA.”
In separate talks with Majlis news agency, ICANA, two MPs censured foreign carmakers for their “sudden” departure.
SAIPA calls foreign automakers “fickle partners” and blames them for their “irrational adherence to US unilateral sanctions against Iran”.
No More Red Carpets
Right-leaning MP Vali Maleki, who believes that the US embargo will be lifted sooner or later, says, “We should not roll out the red carpet for international carmakers again”, which have been “unreliable partners” for Iranian firms.
“This is not the first time that foreign car companies like Kia, Peugeot and Citroen have severed their ties with Iran. During the previous round of US sanctions, they did the same,” he added.
The MP notes that South Korea has extensive economic ties with the US, therefore South Korean firms would leave Iran on the slightest US move.
“Local car companies must focus on technologies and curbing their reliance on foreign suppliers.
He also notes that the ministries of industries and defense have drawn up plans for indigenizing technologies related to auto production.
However, even prior to the imposition of harsh US sanctions against Tehran and despite the support of international players, no significant achievements were made in the field of indigenizing auto technologies.
Considering the headwinds facing Iran’s auto industries, the realization of indigenization goals might be a fantasy, although it might provide a talking point for politicians and embattled company managers.
‘Inconsequential’ Departure
Reformist MP Mohammad Reza Mansouri calls the departure of foreign automotive firms from Iran “inconsequential”, stressing that lack of efficiency is impeding the local auto industry.
He believes that by boosting management and curbing overheads, “Iran’s auto industry can become efficient and even double production.”
This is while the Iranian car companies are reliant on foreign suppliers for sustaining even the production of models like SAIPA’s Pride that has been made in Iran for nearly three decades.
After US President Donald Trump embargoed Iran, the local auto industry’s ties with the global supply chain were almost severed when most automotive partners suspended their Iran operations. This led to a sharp fall in domestic car output.
Since June 2018, Iran’s auto production has been plummeting.
With raw materials and auto parts supply getting bottlenecked, car production plummeted sharply. In the last fiscal year (ended March 20, 2019), a total of 955,923 cars and commercial vehicles were produced in Iran, indicating a 37.8% year-on-year decline.
Overview
The US unilateral sanctions and pressures on foreign auto partners to end cooperation with Iran have taken a toll on the key sector.
The Iranian economy is facing major challenges, not the least of which is the pressure reimposed by US sanctions that have beleaguered Iran’s oil, banking, insurance and transportation sectors.
The national currency went into freefall over the past few months and lost over one-third of its value. This has had a major negative impact on the domestic auto companies’ ability to import spare parts and raw materials.
An earlier report released by Organisation Internationale des Constructeurs d’Automobiles shows that Iran’s automotive output suffered its sharpest year-on-year decline in 2018 since the onset of the 21st century.
Local companies produced 1.34 million cars and commercial vehicles in 2018, marking a 40% YOY decline.
The domestic industry faced a dismal year in 2012 when car output dropped 39%.
However, 2018 was the worst year for the key industry in recent memory. Most market observers and analysts worry that 2019 could fare much worse.