The auto loan has come and gone in less than a week, and car sales have settled to their pre-loan low sales figures. And once again the prospective car buyers are falling quickly out of favor with the carmakers for cutting the loan short.
Now that the dust has settled on the government’s short-lived injection of hard cash, what is likely to be the outcome in the next few months?
There are four probable outcomes in the aftermath of the auto loan. Firstly, the auto industry will level out at a new average monthly sales figure, and they may even be content with this–for the moment at least. They are currently dealing with the delivery of some 110,000 vehicles and the trickle of vehicles sold outside of the scheme.
Secondly, they may have just added fuel to fire, which is the “No to Local Cars” campaign, a grassroots movement organized by Iranian citizens who declared will no longer accept “cars of inflated prices and low quality”.
The auto loan managed to alleviate this situation for all of six days, whetting the appetite of the car buying public. The sudden end of the loan will face a backlash by the hundreds of thousands who were unable to sign up for the deal. This will make more people adamant about boycotting locally made vehicles; time will tell if this happens.
Thirdly, and slightly more worrisome for the carmakers, is the government’s probable hesitation in enacting such policies again. The government and the business community have acknowledged pent-up demand far outstrips supply.
With the current average age of vehicles now hovering around 11 years plus, and being on average 5-6 years older than the European average, the government could have orders in the millions as the wider public may jump on the car buying bandwagon.
Explained another way, if the auto loan was to be offered indefinitely it could actually do far more harm than good–spiking an artificial demand as well as the tepid inflation rate.
Lastly, now that the car buyers, the government, Central Bank of Iran and auto industry watchers have numbers on what real demand levels are, they are stuck with the dilemma of how to respond to pent-up demand or customer grievances boiling over in some form or another.
Currently, the government has stated that it will not extend the loan or revive it in any other form, and that consultations will take place to work out the next step. In fact, the reticence to revive the deal may be the right course of action.
As strong as the demand was during the loan period, the government probably does not want to be in the business of being the only source of credit for the carmakers. Because, if continued, this would likely drain state coffers and add to the country’s financial strain.
The government’s choice in stepping back from the situation indicates they understand the plight of would-be car buyers, hence the scheme in the first place.
Currently, most finance offered as car loan and its ilk is backed by CBI and this does not work in the long run.
International norms suggest that as the economic situation continues to calm over the next few months, along with the step-by-step decline in the rate of inflation, at 16-18%, private lenders could go for a long haul by offering car buyers loans with rates and repayment periods similar to the recent state offer.
However, the high lending rates currently charged by private lenders are high and they prefer much quicker returns.