Decline in Car Production; From Sanctions to Crisis

Although it was predicted that car production would increase in 2015, contrary to expectations and hopes, car production has decreased. The Iranian Automobile Manufacturers Association has reported that car production in 2015 decreased by 13.7%. By the end of the last year, 977,000 vehicles of various types including passenger cars, pickups, trucks, minibuses, and buses were produced in the country, of which 892,000 were passenger cars. According to this report, the production of passenger cars decreased by 6.9%, pickups by 51.5%, and trucks by 53.1%, while buses and minibuses saw an increase of 6.9% and 85.1%, respectively, compared to 2014. The report indicates that Iran Khodro was the largest producer with 507,000 vehicles, while its competitor produced only 371,000, mostly of the Pride model. Last year, Iran Khodro faced a 16.4% decrease in production, while its competitor faced a 9.7% decrease. The most significant reductions in production were seen in the Rana, Peugeot 405, Peugeot Pars, and various Pride models. The shock and widespread recession in the car market, followed by sanctions on the purchase of new cars, which were eventually broken by government loans, are among the factors contributing to the decline in car production in 2015. The recession in the car market was the main reason for the decrease in production. This recession reached a point where four ministers mentioned it in a letter to the President, stating that over 100,000 cars were stored in manufacturing companies, and financial statements showed accumulated losses equivalent to 200 billion tomans for the car industry. However, with the provision of low-interest loans by the government, this crisis temporarily subsided, and manufacturers' warehouses were emptied. From June 2015, the car market gradually entered a recession. Although many expected demand for cars to increase with the start of summer, the market was waiting for the outcome of nuclear negotiations, and this expectation continued into July. With the beginning of August and the agreement between Iran and the 1+5 group, many hoped that people would turn to buying cars, but news of agreements between Iranian car manufacturers and major Western companies like Benz, Peugeot, Renault, Volkswagen, and Fiat for producing new cars shocked the market. Some customers held back, waiting for new cars to enter the market, resulting in about 80,000 cars accumulating in manufacturers' warehouses over two months. Following this event, car production, which was hoped to reach around 1.5 million units by the end of 2015, slowed significantly. Due to this decline in car production, Mohammad Reza Nematzadeh, the Minister of Industry in Hassan Rouhani's cabinet, considered the public's lack of interest in buying domestic cars as 'treason' against the country and labeled those supporting this campaign as 'counter-revolutionaries' and traitors. Hashim Yekehzareh, CEO of Iran Khodro Industrial Group, also stated in response to market reactions that people should not expect a reduction in car prices after the Geneva agreement. He emphasized that his company has no plans to reduce car prices and that people should regain their purchasing power after the nuclear agreement. Nevertheless, the 'No Purchase of New Cars' campaign can only be considered one of the reasons for the decline in demand. Several factors have been cited by experts for the drop in demand, including people's expectations for new models, liquidity shortages, and dissatisfaction with the quality and prices of domestic products. After a sharp decline in car production in September, car prices in the Iranian market decreased several times, further demonstrating the impact of the 'No Purchase of New Cars' campaign on the Iranian car industry. As the scope of this recession widened, the government took action, and Mohammad Baqer Nobakht, head of the Management and Planning Organization, announced that the government had allocated about 200 billion tomans in subsidies for production, part of which would be provided to the car industry. This government assistance was proposed in the form of a 25 million toman loan, which ultimately broke the sanction on purchasing new cars. Although this loan was expected to continue, it was halted after 110,000 cars remained unsold in manufacturers' warehouses within five days. While the loan sales plan had reached its fifth day, the Central Bank sent a letter to the Ministry of Industry, Mining, and Trade stating that the financial resources needed for purchasing domestically produced cars by banks would only be provided for up to 110,000 units, and if exceeded, financing for future productions would not be possible. Although this loan managed to alleviate the crisis for manufacturers in selling their cars, the shock of recession and sanctions was so severe that car production, which was expected to grow compared to 2014, actually decreased. Saeed Leilaz, an expert close to the Iranian car industry who has also been the sales manager at Iran Khodro Diesel, stated, 'If you look at the statistics, you will find that people's purchasing power has severely decreased since 2011, and it will take at least until 2019 to restore it. Between 2010 and 2013, people's purchasing power decreased by 40 to 50 percent. In such conditions, you see that even people cannot afford a Pride. Of course, I mean the middle to lower-income groups. The middle class has also weakened due to the recession that has occurred in the country, and their income levels have reached a point where they are unwilling to spend on buying cars. I believe that if an agreement is reached between domestic and foreign car manufacturers, it will take at least two years for that agreement or contract to begin to impact the market. It is not the case that we can say, for example, that today Volkswagen or Fiat has come to Iran, so we should hold off on buying cars until they become cheaper. Firstly, there will be no reduction in prices, and secondly, the entry of these new cars, as I said, will take two years.'