Iranian car industry suffers as sanctions bite

Tehran’s currency crisis seriously affecting domestic automotive market, despite promises by gov't to control the economy.

October 17, 2012 02:08
3 minute read.
Iranian employees assemble car in Tehran plant

Iranian employees assemble car in Tehran plant 370. (photo credit: Miro Maman)


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As Iran’s economy continues to feel the effects of ever-toughening sanctions, the country’s conservative media continued this week to report a dramatic downturn in the Islamic Republic’s automotive industry, the country’s second most lucrative after oil and gas.

Conservative news site Shafaf News – close to Tehran Mayor Mohammad Baqer Qalibaf – reported Tuesday that the Iran’s currency crisis has seriously affected the domestic automotive market, despite promises by the government to control the economy.

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Car prices are rising because of the fluctuating exchange rate, Shafaf said.

The Persian-language service of Iran’s Fars News, linked to the IRGC, reported on Wednesday that while Iran’s largest automaker, Khodro, has recently announced sharp hikes in car prices, the company’s car loans have remained static, making it harder for Iranians to purchase new automobiles.

Last week Fars News reported that Khodro had sent a directive to all its sales representatives, instructing them of a steep price rise. All Khodro’s cars have risen by as as much as 20 percent, or 2 million to 5m. tomans, with the price of the popular Peugeot 206 model rising by 3.6m. tomans, the report said.

As automobile production in Iran slows down, the country’s auto market is starting to suffer from a shortage in new cars, which has led to a drop in sales, according to conservative website Asr-Iran.

Asr-Iran noted that automobile production was down 42% overall in the first half of the Iranian year, while figures for August and September show that production is down over 66%, according to a report on the latest Industry Ministry statistics.

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One important reason for the production slump is that sanctions have forced international carmakers to suspend sales of car assembly parts to Iranian automakers.

In May, French company PSA Peugeot Citroen announced it was suspending shipments of car parts to Khodro, citing financing problems as a result of sanctions.

While Khodro vowed it would manufacture the missing Peugeot parts locally, in reality the difficulties in importing parts has led to the manufacturing slump, which together with an increase in local prices has led to a sharp drop in domestic sales, as buyers holding out until prices drop again, according to Asr-Iran.

Iran’s auto industry slump has also started to affect auto workers, who are facing job cuts and layoffs. The Human Rights Activists News Agency, which publishes news of human rights violations, reported that the Saipa auto plant in Kashan, Isfahan is likely to fire over 75% of its workforce.

Saipa’s Kashan plant is a major local employer and according to HRANA has over 10,000 workers and operates three daily shifts.

HRANA also reported that Saipa’s Tehran auto plant has reduced workers’ shifts from three to one and has closed production lines.

The downturn in Iran’s automotive industry will likely have serious and farreaching repercussions for the regime and the IRGC, who own large large stakes in the country’s largest automakers. Over the past decade and a half, the auto industry boomed as Tehran deemed it a priority industry, to create revenue for the regime in the wake of ever-tightening US and European sanctions.

Both of Iran’s leading automakers, Khodro – the largest car manufacturer in the Middle East – and Saipa, are subsidiaries of IDRO, the government body responsible for accelerating Iran’s industrialization. According to Swiss sanctions legislation, IDRO controls companies linked to Iran’s nuclear and missile programs including foreign procurement of technologies to aid them.

Another Iranian automaker, the Bahman Group, which manufactures under license for Mazda, is 45% owned by the Iranian Revolutionary Guards Corps, according to a report by Iranian national newspaper Hamshahri.

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