Majlis Insisting on Selling Cars via IME

Hojjatollah Firouzi said offering autos in the bourse will pave the way for realizing the long-awaited demand for ending the mandatory pricing for cars by the government.  

“The Majlis essentially opposes setting price ceilings. Offering cars via the IME will [help] balance supply and demand and let the market set prices,” he was quoted as saying by the Securities and Exchange News Agency.

The commission has drafted a bill “Disciplining the Auto Industry” to offer vehicles at the bourse. The move has met with skepticism from many quarters for being impractical.

Despite doubts about the feasibility of such a plan, it appears that the capital market authorities too are predisposed to the move.

A letter was published by local news outlets on Saturday in which the head of Securities and Exchange Organization Mohammad Ali Dehqan–Dehnavi asked the head of the so-called Competition Council to name decision-makers in the council dealing with the auto sector.

The council is a government-affiliated organization in charge of setting and monitoring prices of some domestically-produced goods, including cars.

The SEO letter was construed by market watchers as a signal that bolsters the possibility of offering cars in the IME, the semi-official Fars News Agency said.

As per the provisions of the bill, cars manufactured by domestic companies will be offered on the IME at base prices set by the Competition Council.

People and households that do not own a car will have priority for purchasing a car from the IME. To counter speculation in the chaotic car market, provisions of the bill stipulate that buyers cannot sell the car for two years after purchase otherwise they will have to pay tax equivalent to 30% of the car price. 

Fundamental Flaws

The Majlis Research Center, the research wing of the parliament is apparently not in favor. “There are fundamental flaws in the plan”, though it may have some merit in improving transparency in the key auto industry.

“Such a plan will not lead to a balanced and broad-based market where there are many buyers and suppliers. Moreover, the market will not be immune from price volatility because not enough buyers and supplies would be participating,” the MRC said.

While getting rid of government intervention is one of the objectives of the plan, the MRC is of the opinion that it could  hit a snag during implementation if the government insists on intervening to control volatility in the auto market.

The think tank said the government could resort to setting price ceilings when car prices surge at the IME, which would not be compatible with the dynamics of the bourse where market forces determine prices.

Setting arbitrary prices by the government and not letting prices be determined by supply and demand are seen as intrusive and unproductive.

The MRC has taken note that such a move has no counterpart in the world stressing that in no country the auto sector is under the domination of a few automakers. “When there is no monopoly goods are traded in a competitive environment,” the research center said.