Apr 15 2010

Auto Sector and Tariffs

The commerce minister says Parliament has agreed to proposal to increase car import tariffs from 70 to 90 percent.

However, Mehdi Ghazanfari told Inn.ir on Monday that the new rates will apply only to superior quality models.

According to the minister, the Majlis wants to impose 90 percent tariff on car imports but has made clear that this would be for high quality imports. It has asked the Commerce Ministry to chart out new regulations to help ensure the smooth implementation of the new tariffs.

Lower Tariffs
In 2006 the government lowered auto import tariffs to 90 percent for light weight vehicles and the result was a huge influx of imports. Tariffs for imported heavy vehicles were 20 percent due largely to limited domestic output and high demand. As a result, a variety of models are now being imported including Toyota, BMW, Mercedes Benz, Rover, Ssangyong, Audi, Subaru, Volkswagen, Renault Leon, Altea, as well as construction and mining equipment from leading manufacturers such as Mercedes, Renault, Iveco, Mann, Kamaz and Caterpillar.

The auto industry is indeed the second most important industry in Iran after oil and gas. Iran is the 16th largest automaker in the world.

Domestic Manufacture
There are many public and privately owned automakers, of which two-- Iran Khodro and Saipa --account for 94 percent of the total domestic market.

Iranian companies produce a variety of vehicles, including passenger sedans, 4WD, trucks, buses, minibuses, and pickup trucks. The sector directly employs about 500,000 people and many more in related industries. About 75 percent of the local output is passenger cars, with pick-ups coming second and accounting for almost 15 percent.

Last year the Industrial Development and Renovation Organization (IDRO) reported that SAIPA accounted for 54 percent and Iran Khodro for 46 percent of the total national output. Although carmakers are listed on the stock exchange, government still owns about 40 percent of both companies.

The other car manufacturers - the Bahman Group, Kerman Motors, Kish Khodro, Raniran, Traktorsazi, Shahab Khodro and others together produced only 6 percent. These companies produce a wide range of vehicles including motorbikes, passenger cars, vans, mini trucks, medium-size trucks, heavy duty trucks, minibuses, buses and heavy automobiles. Iran Khodro Diesel has a dominant market share in bus, truck and van production.

Some of the problems this key sector is facing include slow deliveries, poor after-sales services and low quality. For this reason Iranians who can afford prefer to buy imported luxury cars which are usually expensive. Normally prices start from $40,000.

To support domestic producers, however, the government has imposed higher tariffs on imports. But that hasn't discouraged the rich and influential from going for the luxury brands.

The government is also promoting its R&D sector. New lines of locally designed and manufactured diesel, gasoline and CNG engines are being developed. There is also research on hybrid and electric vehicles.

In addition, nanotechnology is being researched to help improve quality, standards and customer satisfaction by offering anti-bacterial seats, anti-scratch paint, hydrophobic glass panes, maintenance-free air filters, anti-stain dashboards, nano-catalytic converters and nano-diamond containing lubricating oils.

Automakers are also in joint ventures with several popular international automakers such as Peugeot, Citroen (France), Volkswagen (Germany), Nissan (Japan), Toyota (Japan), Kia (South Korea), Proton (Malaysia), Chery (China), Renault (France), BMW, Mercedes Benz (Germany) and Daewoo and Hyundai (South Korea).

Like other sectors the auto industry is in need of foreign direct investment and capital. The privatization process is moving extremely slowly and high inflation, exacerbated by fuel price hikes, and dampened consumer demand have depressed growth in the passenger car segment, but industrial growth coupled with infrastructural development are spurring demand for commercial vehicles.

Compiled by Ghanbar Naderi

© Iran Daily 2010

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