Why is the Iranian Car Market in Confusion and Turmoil?

Three important decisions made in July this year have impacted the Iranian car market: the claim of liberalizing imports in the final days of Ebrahim Raisi's government; the cancellation of previous pricing regulations by the new president; and the determination of a currency threshold for automakers. These three resolutions have caused confusion and turmoil in the car market, while the overall situation in the automotive industry is not favorable for consumers, leading to protests by various consumer groups in front of government organizations and car companies. Meanwhile, inefficient policies and management, alongside sanctions, have put the production of cars in Iran on a downward slope, to the extent that the production target for 1403 in some automakers shows even lower figures than last year. Data from the 'Codal' stock exchange system indicates that the total production of the three major automakers, namely Iran Khodro, Saipa, and Pars Khodro, in the first four months of this year was less than 291,000 units, representing an approximately 11 percent decrease compared to last year. Imports, government pricing, and sanctions have long turned the Iranian car market into a worn-out and rent-seeking market that neither meets consumer expectations nor adds value to the Iranian economy. The government, by fully controlling the production and pricing cycle, only offers two options to car applicants: buying expensive domestic cars through a lottery or purchasing the same products at a higher price in the free market. The Central Bank suspended the government's permit for importing used cars. This situation has, on one hand, deprived citizens of the 'freedom to choose goods' and, on the other hand, turned Iranian automakers into entities that, at best, will become assemblers of second-rate Chinese products if they can secure the necessary currency. The political struggles between the government and parliament regarding the automotive industry have led to consumer dissatisfaction to the extent that the automotive sector may become a daily challenge for the government, similar to the water, electricity, and gas industries. The uncertainty in the market regarding the status of imports and pricing, along with repeated reports of technical defects and accidents involving low-quality cars and the inability to supply parts and deliver new cars on time, are the latest challenges observed in the car market. The uncertainty surrounding car imports, which has been banned since 1397 due to a currency shortage, has seen government officials and parliament members include the issue of liberalizing car imports in their electoral promises over various terms; a promise that has never been realized due to currency shortages. In the latest instance, Ali Bahadori Jahromi, the spokesperson for Ebrahim Raisi's government, announced about a month ago in one of the last meetings of the thirteenth government that 'every Iranian can import a car.' This grand claim was unrealistic, as importing cars in such volume seems fundamentally unattainable given the current currency constraints of the Iranian economy. Moreover, before the import ban, car import companies provided after-sales services and car parts alongside imports, making it clear that granting import permits to individuals does not facilitate this process. The thirteenth government's promise was assessed by experts as a 'publicity stunt.' Farhad Ehteshamzad, an automotive expert, reacted to these statements by saying, 'The reality is that this news is a publicity stunt because previously, the Minister of Industry, Mine, and Trade had shown no willingness to implement this law and had even officially stated that he breaks out in hives when it comes up.' Mohammad Sadegh Hosseini, an economic expert, stated on his X social media account: 'Do not take these words seriously. The liberalization of used car imports did not require a government resolution at all.' These statements directly question the intentions of the previous government spokesperson. Therefore, it can be said that the thirteenth government, by announcing this decision just ten days before the end of its term, passed the ball to the next government to face its challenges. The thirteenth government, in the final weeks, liberalized car imports. However, it was initially stated that car imports would be conditional on the Central Bank's permission and the allocation of currency by that institution. The Central Bank quickly clarified the situation for applicants, announcing that the import of used cars was suspended until further notice. The cancellation of previous pricing regulations was agreed upon by the thirteenth government in the last days of its term, but with the rise of Masoud Pezeshkian, a new shock hit the market; the new president annulled all price increase resolutions for Iran Khodro, Saipa, and assembled cars. Pezeshkian's decision was made following ongoing protests by car applicants in Iran. In recent months, Saipa applicants have protested against price increases and delays in the delivery of the Changan CS55 in front of the Ministry of Industry, Mine, and Trade. On the other hand, the producer of assembled cars 'Modiran Khodro' has also been the center of protests from car applicants in recent months. This company, after experiencing fatal technical defects in the axle component in some models, faced a production line shutdown by the Standard Organization's order, and recently faced protests from applicants due to price increases. It is unlikely that Pezeshkian's decision will solve the problems of parts and currency shortages for automakers, and currently, it has caused more confusion and uncertainty than it has provided solutions. The government's method of managing the car market has always been influenced by the consequences of price controls and state intervention. On the other hand, automakers have their traditional methods for survival in this market. Whenever the government prevents price increases, they refuse to comply with pricing or limit the supply of cars until the government backs down. For instance, last year, when the Competition Council set prices for assembled cars, assemblers disregarded this decision and raised prices. After all these ups and downs, on Mordad 8, news was published indicating that the Ministry of Industry, Mine, and Trade had mandated automakers to average their product basket's currency consumption to $9,500; another blow to the production cycle that is completely contradictory to the car import plan and will cause problems for the production cycle of some models. Although the currency consumption of Iranian cars is generally below the Ministry of Industry, Mine, and Trade's threshold, many Chinese cars offered with new features and options will be affected by this directive. Private assemblers, each offering at least several semi-luxury car models with currency consumption above $9,500, are likely to oppose this plan. If this plan hinders the production of such cars, it is not unlikely that assemblers will face more supply issues and ultimately public protests. One of the main reasons for the ban on car imports in Iran is the currency shortage in the country. Cars are among the most currency-consuming goods. For example, the price difference between a car and a washing machine can serve as a good example, although the import of home appliances has also been banned in Iran. However, why did the currency shortage lead to a ban on car imports? If car imports were liberalized, the demand for currency in the market would rise, and if the demand for currency in the market rises, the free market dollar price would not remain at its current level. In fact, this is one of the methods used by governments in the Islamic Republic to control currency prices. Therefore, it is evident that the government has some apprehension about the liberalization of car imports, especially since the demand for imported cars is very high and high demand can directly affect the currency price in the Iranian market. However, the issue of imports is only part of the challenges facing the automotive industry today; the suspended state of the car market and uncertainty in most influential factors have recently deprived car applicants of the ability to make decisions. Car buyers may face new decisions from the government at any moment; decisions that could even threaten their small investments. In the Iranian car market, the discussion is no longer just about why low-quality and expensive cars are sold through lotteries, but also about the lucky applicants who manage to buy these cars at factory prices must wait months for their release. The government, as the main supporter of car manufacturing in Iran, has always intervened maximally in policymaking and pricing under the pretext of the strategic position of this industry and its job-creating nature; an intervention that has now become an obstacle to improving quality and production volume.