Iran’s automotive industry – the biggest in the Middle East and one of the 20 largest in the world – has become mired in crisis, amid allegations of corruption, the arrest of senior executives and the loss of international partners due to sanctions.
At the centre of events are the country’s two leading car makers, Iran Khodro and Saipa.
Iran Khodro’s chief executive Hashem Yekke-Zareh has been unexpectedly removed from his post in recent days and, according to some reports, has been arrested – something which reformist MP Bahram Parsaei described as “a good start.”
The government-owned news agency Press TV said Yekke-Zareh had been replaced due to “his uncoordinated decision to increase prices.” Taking his place is Abbas Aliabadi, previously managing director of local construction and engineering firm Mapna Group.
Other senior managers at Iran Khodro have also reportedly been arrested over alleged irregularities and executives at the country’s second largest car maker, Saipa, have also reportedly been detained or barred from leaving the country.
The pricing of locally-made cars in Iran has been a contentious issue over the past year, with several sharp price hikes announced at short notice. Another lingering issue is the quality of the cars. One recent report noted that 34% of those who died in road traffic accidents over the past 11 years died in the Saipa Pride, which is based on an old South Korean model.
Parsaei, an outspoken critic of the car industry, has described some of the vehicles produced locally as “chariots of death”. He has also repeatedly raised pointed questions about the costs the two main car companies – both of which are still thought to be largely state-controlled – have incurred in developing new models.
Iran’s vehicle manufacturing industry has suffered several ups and downs in recent years, largely as a result of sanctions. When the market opened up to international companies in the wake of the nuclear deal signed in 2015, numerous car firms were lured in, particularly from Europe and Asia.
However, the re-imposition of U.S. sanctions last year has badly undermined the industry, with international players leaving the country, taking their skills and technology with them.
The Defense Ministry has had to step in to produce parts that were previously imported but now subject to sanctions. Other local firms are also starting to make car parts, with the government offering to support their efforts with soft loans.
As a result of such trends, there have been huge swings in production volumes. In 2000, Iran was producing around 280,000 vehicles a year. Ten years later that had leapt to 1.6 million, including 1.37 million cars and 230,000 commercial vehicles, according to the International Organization of Motor Vehicle Manufacturers (OICA).
Production hit a high of 1.65 million vehicles in 2011 and was still at 1.5 million in 2017. However, last year there was a 28 per cent decline in output, with the volume of cars slipping to just over 1 million and commercial vehicles dropping to under 70,000.
That has been reflected in the financial performance of local firms. In the year to March 20, Iran Khodro made a pre-tax loss of IR85 trillion ($2 billion). In the first quarter of the current Iranian fiscal year, to June 21, it saw a 33% year-on-year decline in revenues to IR43.8 trillion and booked a pre-tax loss of IR17.7 trillion. The financial performance of other local car makers such as Saipa and Pars Khodro has been similar.
Source » forbes