Car prices are going up again in the new Iranian year (started March 20), but is that justified or helpful to the automotive industry?

According to a report last week, the average price of Iran Khodro (IKCO) cars in the coming year will increase by 5 million rials–at the most, according to Asre Khodro.

What will this mean to car buyers inside Iran? Most probably little or nothing to be quite fair.

The price increase this year is not seen as something that is going to cause a stir but will only annoy car buyers, as the rate of increase is above the baseline of inflation.

The car pricing issue gets more complicated, as recent reports in domestic media outlets say Iran's Ministry of Industries, Mining and Trade wrote a letter to the Competition Council advising against a price hike.

Industries Minister Mohammad Reza Nematzadeh said his letter was "ripped up".

This indicates that all is not well in the car industry. The automakers are still struggling with the historical dip in demand, coupled with many still owing hundreds of millions of dollars to banks and third-party manufacturers.

But, what if the car price remains stubbornly high? What does long-term historical trends reveal when it comes to the price of new vehicles?
A lawmaker said after a thorough study of Iran’s car production trends and the recent increase in car prices, the parliament believes prices should decline by 30%.

Nader Qazipour, who is also a member of the committee to investigate the auto industry in 2014, noted at the time that the committee identified abuses and violations in the industry and reported six cases to the judiciary, while another seven cases are ready to be sent to the court.

The parliament says the recent rise in car prices has no legal basis and that automakers are taking advantage of their oligopoly in violation of the consumers’ rights.

The parliamentary opposition was expressed after the Competition Council yielded to pressure by carmakers and increased car prices by 30% in July 2014.
Following the rise, MPs threatened to grill Nematzadeh over the price hike.

In April 2015, car prices were to be announced in the following year, Tasnim News Agency reported.

"Auto prices will be set using a formula devised by the council during the last Iranian year (which ended on March 19, 2016)," the agency quoted Isa Emami, another lawmaker, as saying.

It remains to be seen how that strategy has played out one year later.

Emami added that the defining criteria include inflation, quality and productivity.

The main issue with this statement is that if inflation is going down, car prices should not increase and, instead, remain stable. They could possibly decrease in the next couple of years, a novel idea to some.

Maybe car buyers have not seen the memo that car prices should only increase with the base level of inflation. However, old habits die hard and there are debts to be paid.

This year, the cost of production will continue to fall by current estimates. And hopefully, with the leveling out of prices, the rise in car prices should not hurt buyers much.

The stubbornly high prices in the market have heavily slowed car sales over the past few years.

With the impending entry of new vehicles into the domestic market, including SUVs and crossovers from IKCO, as well as foreign entrants, Iran should see an incremental drop in the prices of new and used vehicles, and not a price hike .

By Financial Tribune