Financial Tribune | Khosro Kalbasi: The head of Iran Auto Importers Association, Farhad Ehteshamzad, is of the opinion that cumbersome regulations related to the auto import sector are unwarranted leaning on imprudence, and therefore need to be redefined sooner rather than later.
In an interview with the Financial Tribune Ehteshamzad says, “Excessive government oversight and burdensome regulations are major obstacles to auto imports and have visibly kept foreign investment at arm’s length.”
After the 2015 nuclear deal, formally known as the Joint Comprehensive Plan of Action, several foreign firms made moves to restart their operations in Iran, but in essence, the JCPOA is yet to bring about the highly anticipated change in the imported vehicles sector.
“While Iran is one of the safest countries in the region in terms of security, investment risk in the country is still high. This is due largely to the frequently changing laws and inconsistent rules for both industry and economy.”
As if this is not enough, Ehteshamzad said, “the investment risk is so high that even locals are reluctant to invest.”
The senior auto import official was echoing the oft-mentioned concerns of business leaders, industrialists, respected economists, stakeholders and market observers regarding unfriendly, unwanted and unhelpful regulations that have for years undermined the economy and added to the long dole queues as jobs become few and far between.
He also believes that although the Rouhani administration has promoted free commerce and growth of the private sector, private companies have been “marginalized during his tenure.”
“Marginalizing the private sector does nothing to send a reassuring message to foreign investors. This in and by itself has become a hurdle in the way of foreign investment.”
But, the government has been able to exert its clout on some foreign carmakers leading to deals with Iranian businesses, he said.
Companies which had a long history of presence in Iran, like the French PSA Group and Renault, have signed deals with top domestic auto firms like IKCO and SAIPA, to produce several new vehicles.
However, the activities of other auto firms in Iran have been shrouded in doubt. For instance, while Volkswagen has reportedly signed production deals with a local firm, they are yet to be officially announced.
Iran’s share of the international auto industry is less than “0.5%”, Ehteshamzad noted, adding “a share so meager that Iran is unable to exert pressure on the international players in the sector to make them come to the negotiating table.”
Ehteshamzad said one of the main problems in dealing with reputable foreign firms is the reluctance of major European banks to “open letters of credit (L/C) for Iranian businesses.”
While Chinese and South Korean banks are collaborating with Iranian banks and industries, Europe’s major banks are hesitating to resume ties, throttling imports in the sector.
“European automotive giants like BMW and Mercedes-Benz do not work with second and third tier banks. This has forced Iranian auto importers to use the services of credit and financial institutions that are mediators and facilitators between the Iranian and the European banks and businesses,” Ehteshamzad complained.
He, however, concurred that banking ties between Iran and the EU no doubt have improved and “the direction is promising.”
Import Tariffs & Prices
Ehteshamzad addressed the issue of high prices of imported vehicles. Almost all foreign cars sold in Iran are priced 90% higher than their international price tag.
“In 2013, the government said in order to cajole local carmakers to produce quality vehicles and to boost competition with foreign firms, the import tariffs would be decreased gradually.”
But, in fact, auto import tariffs have indeed increased despite the revisions.
Official auto imports tariffs are between 40% and 50%, depending on engine capacity, and the figure is significantly lower for hybrid vehicles at 5%.
However, the government charges importers up to 100% of the value per vehicle under various regulations, but some organizations get preferential treatment and a slice of the import tariffs. There are 17 national bodies on the favored list, including the Iranian Red Crescent Society for renewing its ambulance fleet.
Furthermore, he said, “According to the latest rules of the Consumer and Producer Protection Organization (CPPO), importers’ margin from each vehicle is 7% of the value of a car, “to cover all the costs of the business operations and after sales services, in addition to profit.”
Iranian auto importers have to offer several after sales services without the backing of the parent company, which imposes excessive costs on the businesses.
But when it comes to pricing, after the government “gets its share,” there is almost no oversight from then on as car dealers demand whatever price they wish.
During the last fiscal year that ended in March, the country’s main suppliers of imported vehicles were the UAE (65%), South Korea (16%), Germany (3%), Turkey (3%), Spain (2%) and Kuwait (2%). The six countries catered to 92% of Iran’s imported vehicle market.
During the final months of the past Iranian year (ended March 20), Oman made an attempt to increase its share in the imported vehicle’s market. However, it has not yet been able to make its way into the short list.
Market observers are of the opinion that in light of cordial ties between Tehran and Muscat, companies in the neighboring Arab sultanate country are gradually catching up with their rivals not only in the auto sector but also other bilateral commercial relations, thanks to the lifting of international sanctions last year.
The domestic automotive market is easy money for foreign producers and dealers since the businesses do not have to provide the variety of services that are required of them as in the EU or some developed Asian countries. Recalling of faulty vehicles, products or insurance services offered by producers in the EU and all other major auto markets are non-existent in Iran.