What the 'No Purchase of New Cars' Campaign is Doing

Javad Asgari - The storage of 80,000 cars in one of the car manufacturers, a 15% decrease in car registrations in July, and finally a 9.5% decrease in production in July compared to June may be part of the impact of the 'No Purchase of New Cars' campaign. Meanwhile, the market for spreading false news on social media is also booming; for instance, in one case, a photo of Iran Khodro workers resting between shifts was cited as evidence for the closure of Iran Khodro. Beyond this news, what is certain is that car production in Iran has decreased, precisely at a time when it had been growing since the beginning of the year; overall, in the first five months of this year, car production increased by 16% compared to the same period last year, but this growth has now changed course over the past two months. Due to this decrease in car production, Mohammad Reza Nematzadeh, the Minister of Industry in Hassan Rouhani's cabinet, considered the lack of public interest in purchasing domestic cars as a 'betrayal' to the country and labeled those who support this campaign as 'anti-revolutionary' and traitors. Hashem Yekehzareh, the CEO of Iran Khodro Industrial Group, also stated in response to market reactions that people should not expect a decrease in car prices after the Geneva agreement. He further emphasized that his company has no plans to reduce car prices and that people must 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, a lack of liquidity, and dissatisfaction with the quality and prices of domestic products. Since June, the car market has gradually entered a state of stagnation. Although many expected that demand for purchasing cars would increase with the start of summer, the market was waiting for the results of the nuclear negotiations, and this expectation continued into July. With the beginning of August and in light of Iran's agreement with 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 new car production shocked the market. Some customers held back, waiting for new cars to enter the market. In this regard, Saeed Leilaz, a car market expert, believes that 'people will become frustrated after a while because producing any new car takes at least two years, and most customers who have currently stopped buying cars cannot wait that long.' Saeed Leilaz considers one reason for the decline in demand to be the decrease in the purchasing power of the middle class. He states, 'Those who have owned a car have not been able to upgrade it, and those who do not have a car are unable to purchase even a Pride at a price of around 20 million tomans due to a lack of liquidity. This group of individuals, given the country's economic situation and the slow growth rate, will not be able to purchase a suitable car for themselves for at least the next three years, as it seems that people's living conditions will not change until the year 1398 (2019). The second point is the public's hesitation regarding purchasing cars. People believe that strange and unusual events will soon occur in the car market and that prices will drop. As long as they hold this perception, they will not commit to buying cars. In any case, there is nearly 800 trillion tomans of liquidity in society that could act like a bomb and disrupt the economy in times of crisis. It may be better for policymakers to take measures in such conditions to direct this idle liquidity into the production sector so that people can confidently purchase their necessary goods. Currently, automakers are examining a plan for 15 million toman loans for purchasing cars, a plan that might help pull the car market out of stagnation if conditions are favorable. However, beyond the expectation for new models and reduced purchasing power, many consider the 'No Purchase of New Cars' campaign to be one of the reasons for the sharp decline in demand for purchasing cars. These individuals believe that people are frustrated with the low quality and technology of Iranian cars and, given the new conditions in Iran and the lifting of sanctions, expect car prices to return to pre-sanction levels after a few months. Majid Reza Hariri, a member of the Chamber of Commerce, believes that 'domestic automakers have been forcing people for several years and imposing themselves on the public from a monopolistic position. Our automakers must be able to modernize; otherwise, there is no problem if domestic car companies go bankrupt. The campaign that has emerged is not against domestic production but rather against the automakers themselves, as they have lined people up, taken their advance payments, made promises they did not keep, and offered low-quality cars. The automakers' behavior towards the public has ultimately led to the pent-up frustration of the people against the automakers resulting in the creation of such a campaign.' The low quality and outdated technology are not new issues; before Mahmoud Ahmadinejad's government, during Mohammad Khatami's presidency, efforts were made to replace three cars, Paykan, Pride, and Peugeot 405, which accounted for over 80% of Iran's automotive production, with the Tondar 90. Paykan was phased out of production in the last year of his presidency in 2005, but with Ahmadinejad's arrival, the Tondar 90 production plan was halted, and the production of Pride and Peugeot 405 accelerated. However, since 2007, Tondar 90 production began with changes in the contract between Iran and France. Yet, the production volume of this car never reached the planned 300,000 units; instead, the production volume of Pride reached 400,000 units. With the onset of a new round of sanctions, some parts for Pride and Peugeot, which were supplied from Korea and France, could not enter Iran due to the sanctions against Kia and Peugeot, and with the replacement of Chinese parts for the production of these cars, their quality decreased. However, this decline in quality coincided with a threefold increase in the prices of these cars, with the price of Pride rising from 7 million tomans to 21 million tomans. Now, after the agreement, people expect car prices to decrease again, a matter that Iranian automotive industry activists reject. Mohammad Reza Najafi-Manesh, a board member of the Automotive Parts Manufacturers Association, states, 'There will be no decrease in car prices at all, and even an increase in car prices is anticipated. Domestic automakers incurred over 6 trillion tomans in losses in 2012 and 2013, and one of the automakers is still selling its cars at a loss, so there is no room for a decrease in car prices.' However, despite these statements and the announcement of future price increases, in August and September 2015, the prices of some car models decreased in several stages by between 500,000 tomans to 2 million tomans.