Iran Pulse

Iran's car market engulfed in growing economic crisis

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Article Summary
Crisis conditions bite into Iran’s car market, with customers forced to shell out higher prices for both foreign and domestically made vehicles.

The sudden rise in car prices in Iran has created an unusual dilemma for the country’s economy. Unable to solve these kinds of issues, President Hassan Rouhani’s administration usually either blames these problems on systemic issues or as part of a psychological war waged by hostile powers. But neither of these explanations has any social acceptance in Iran.

During the past few weeks, a radical increase in the price of cars has resulted in domestic manufacturers announcing various plans to release more vehicles into the market. But what is the real reason for the price surge? The root of the problem might be found in a decision by the Ministry of Industry, Mine and Trade back in July 2017 to close down the car registration system. The reason for this move was to update the rules and regulations related to imports and related tariffs. The system stayed closed for six months before being reopened on Jan. 1. But what were the effects of this on the car market?

Asal Dadashloo is a car marketing expert who has a popular online program in which she discusses the technical differences between various domestically manufactured cars. She told Al-Monitor, “The sudden rise in the price of imported cars goes back to the administration’s problematic decision of July 2017 to close the registration website. While the market had reached a plateau due to imports, the six-month-long halt resulted in a rise in prices for the existing cars. Some import companies were able to find loopholes and continue to import cars, but then they started hoarding the cars and selling them for a much higher price after the new tariffs were announced.”

In reality, Rouhani’s administration had decided to introduce the new tariff in order to conserve hard currency, and it no doubt knew that this would result in a radical rise in the price of imported cars. However, this decision not only impacted the price of imported cars, but it also resulted in domestic car manufacturers increasing their prices. The latter’s main reasoning is rooted in the rial devaluation and also the yet to be confirmed reports of the presence of foreign auto companies in Iran. Meanwhile, the administration recently also announced an outright ban on the import of cars in a move geared to conserve foreign exchange.

Since March 2017, prices for imported cars have risen about 200% and domestic car prices have also increased by 30%. For example, a Peugeot 206 — which was worth 340 million rials ($8,000) last year — today costs about 440 million rials ($10,300). Meanwhile, there is a 60 million rial ($1,400) price difference between the manufacturer’s price and the open-market price. While the manufactures announce a lower price than that on the open market, they do not have enough stock — leaving customers forced to turn to the open market.

On the other hand, state-sponsored car manufacturers are introducing new plans and opportunities for pre-sale and flash-sale to their customers in order to put an end to complaints and dissatisfaction. However, these sales opportunities, which are mostly online, rarely benefit ordinary people because usually within minutes of registration being announced, the websites crash or become unavailable. It is widely believed that this is because the manufacturers themselves, or people close to them, use insider connections to buy the limited supply — which has been set aside to be sold at a price lower than that on the open market.

Another important factor is the uncertainty regarding whether foreign car manufacturing companies will remain in Iran. During the past few weeks, large companies such as Hyundai, Mazda and Peugeot have announced that they will leave the country as US sanctions are set to be reimposed. Other factors that have affected the domestic car market include the rial devaluation, the sudden rise in foreign car prices, the increase in the price of basic car parts and the Rouhani administration’s inability to take action.

Al-Monitor discussed this chaotic situation with vehicle specialist Marjan Eslami Far, who said, “The car market has long been in recession. In order to attract customers, the exhibitors would offer prices lower than those of the manufacturers. Now, however, they rather wait and have no sales since they believe prices will go even higher than this.” She added, “Of course the imported car market has been left unregulated as well. … The administration has been opposed to importing cars and is probably not unhappy with the rise in prices, for it will discourage people from buying foreign manufactured cars and thus there will be less chance of currency leaving the country.” Eslami Far also listed other reasons for the crisis mood. She added, “Major car manufacturers have either already announced that they will leave Iran or they are considering it. Smaller car assembly companies are known for being unreliable. They either never deliver the actual car, instead offer the customers their money back with interest or end up delivering another type of car — or, in the best possible scenario, deliver the car months later. As a result, an atmosphere of distrust has dominated the Iranian market.”

The fact of the matter is that extensive rent-seeking activities thrive in the current atmosphere. The head of the State Inspectorate Organization of Iran, Naser Seraj, commented on this June 17: “Unfortunately, the website for the Ministry of Industry, Mine and Trade has been hacked, and about 5,000 top brand and expensive cars have been imported to the country; out of those 5,000 vehicles, about 4,000 have been released into the market. About 1,000 vehicles are still waiting to be discharged, and we are hopeful that a decision will be made soon about these vehicles.” No more comments were made about this astonishing incident, but at least one thing is clear: All evidence points to the existence of a management crisis in Iran’s economy.

Although the Rouhani administration — and especially its economic team — constantly claims that the Iranian economy is in good shape, clearly this is far from the truth. Perhaps the main factor behind the ongoing crisis is people’s fear of what the future might bring. With the decrease in the value of the national currency during the past few months, people are worried about their capital. Although the administration is trying to absorb this capital and use it for production, in such an atmosphere of uncertainty and instability, people are instead looking for the most secure channels to protect their holdings.

Found in: Economy and trade

Saeid Jafari is an Iranian journalist and Middle East analyst. He has worked for such Iranian publications as Aseman, Khordad, Mosalas and Mehrnameh. He is the editor of the international and diplomatic section of the weekly Seda in addition to working for Khabar Online. Jafari has also published English-language articles in Iran Review. On Twitter: @jafariysaeid

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