Iran – Bar Set Higher for Auto Manufacturing Firms
Bar Set Higher for Auto Manufacturing Firms
In a bid to support Iran’s auto parts industry, the Ministry of Industries, Mining and Trade has obliged foreign carmakers to allocate a 20% share for domestically-made car parts if they want to operate in the Iranian market, secretary of Iranian Auto Parts Manufacturers Association said.
Arash Mohebbinejad added that the ministry has also obliged Iranian carmakers to purchase 40% of the parts used in production from the domestic market, ILNA reported.
In accordance with Iran’s macroeconomic development plan, the government has set a goal of increasing car output to three million vehicles per year by 2025. And Iranian car parts makers are obliged to produce $6 billion worth of car parts by 2025. Earlier, Mohammad Baqer Rejal, the head of Iranian Car Parts Manufacturers Association, said the country’s auto manufacturers owe $2.3 billion to car parts manufacturers.
A large portion of the debt was accumulated in the past few months, as the debt stood at $1.6 billion some four months ago.
The chief executive of an automotive company, who wished not to be named, said Iranian carmakers are struggling to find local parts companies to actually set up the new production lines, in view of the amount of current debt.
At present, only 15-20% of car parts cannot be produced in Iran and this is due to the fact that launching their production lines is not economically feasible, as they mostly include electronic parts.
Iran’s car output during the last fiscal year (ended March 19, 2016) decreased by 13.7% year-on-year and stood at 976,836.
Iran produced 989,110 cars in 2012, which made the country Asia’s eighth and the world’s 18th largest car manufacturer.
The Islamic Republic’s car output declined by 40% in 2012 following the sanctions.
Now after the removal of international sanctions, the industry plans to revive the carmaking industry as cooperation between Iranian carmakers and foreign car manufacturers has revived.
Deputy Minister of Industries, Mining and Trade Mohsen Salehinia earlier noted that the country plans to boost its auto export and the Iranian market will be supplied with joint venture products from early 2017.
Experts believe that the Islamic Republic is capable of becoming a car production hub in the region, given the country’s geopolitical situation and high security.
James Dorsey, a senior fellow at Nanyang Technological University’s S. Rajaratnam School of International Studies, noted that initially, the car industry is likely to focus on the country’s domestic market.
“Beyond the fact that Iran has a substantial domestic market in its own right and a longstanding industry with local models, the car industry needs significant upgrading to erase the effects of years of international sanctions,” he said.
Iranian President Hassan Rouhani has urged international companies to cooperate with Iran to develop the country’s auto manufacturing industry.
He said Iran welcomes foreign carmakers to come, do research and produce, as Rouhani believes Iran “cannot close the doors and compel people to buy homemade cars.”
Economists claim that Iran’s automotive industry needs modernization after years of sanctions, while its car parts manufacturing industry needs to absorb $8 billion worth of foreign investment on a long-term basis.
The government sees full privatization of the car industry as a tool for achieving its development. Officials say privatization, being a key strategy for the rehabilitation of Iranian economy, will help upgrade the Iranian car industry and promote its growth.