11 Dec 2023
Wednesday 23 January 2013
Story Code : 18278

Iranís car industry output falls sharply

Iranís car industry output falls sharply
1342513434_6Iranís output of cars Ė the countryís biggest non-oil industry Ė has fallen by about 50 per cent, as the tightening international sanctions over the countryís nuclear programme aggravate economic woes.
Production dropped to 677,000 cars in the first nine months of the Persian year that started in March, from 1.2m during the same period last year.

Although Iran experienced dramatic reductions in vehicle production during the Iran-Iraq war in the 1980s, the latest fall in volume is unprecedented, analysts say.

ďIndustries such as the automotives which are dependent on imports and hard currencies [used to buy imports] are the most vulnerable to sanctions,Ē Ezzatollah Yousefian-Molla, a member of parliament, recently told the semi-official ISNA news agency.

Car and auto parts producers have been among the hardest hit by†international sanctions†that have caused a fall of more than 50 per cent in†the Iranian rial.

Domestic media have reported that more than 110 auto part makers shut down and thousands of workers lost their jobs over the past year.

Moreover, Iranís two largest†state-run carmakers†, Iran Khodro and Saipa, are reportedly now suffering from overstaffing Ė or ďhidden unemploymentĒ, as the domestic media call it Ė due to the decline in output.

The two companies declined to comment to the Financial Times.

Mohammad Bayatian, a member of the parliamentís industries committee, said recently that the total losses of Iran Khodro and Saipa had reached 10tn rials ($407m) due to a ďfivefold riseĒ in prices of raw materials.

In a move to support carmakers, the government has allowed them to raise the prices of cars by about 25 per cent since last October. The official price of the cheapest models of Kia Pride Ė the South Korean car which accounts for up to 40 per cent of vehicles on the countryís roads Ė has officially increased from 75m rials ($3,053) to 119m rials ($4,845). The market rate is about 20 per cent higher still.

But carmakers argue the price rises do not cover the losses they have sustained, as their costs have more than doubled over the past year because of the†plunging rial. Analysts say international sanctions have laid bare structural problems in the car sector, which has been protected for decades by tariffs of more than 100 per cent on imported vehicles.

Car production in Iran has long been a political matter, with central government taking a role in directing the operations of Iran Khodro and Saipa. Iranian President Mahmoud Ahmadi-Nejad has in the past ordered them to open production lines in Venezuela and some African countries, despite such expansion being economically questionable.

Many commentators are now urging the government to bail out the industry. For months, the government has promised to pay 20tn rials ($814m) to the two leading carmakers so they can pay their suppliers.

But the banks that would underpin any bailout are themselves grappling to deal with international sanctions, with overdue loans now exceeding deposits.

Iraj Nadimi, a member of the parliamentís economics committee, said this month that carmakers should not ďtie their survival to banking loansĒ because ďbanks are emptyĒ.

Meanwhile, some of the Iranian producersí European and South Korean partners, including Franceís†PSA Peugeot CitroŽn, have left the market due to sanctions.

Franceís Peugeot Renault appears to be the lone European carmaker still operating in Iran.

The gap created by this exodus is opening up an opportunity for Chinese car and auto part makers. Sales of some makes of Chinaís Chery Automobile Co, such as the MVM and X33, have more than doubled since last April, although the companyís share of the Iranian car market is still less than 6 per cent.

ďThis is another example that Chinese are the main beneficiaries of the sanctions, while Iranians and Europeans are losing,Ē said one economic analyst.

By Financial Times


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