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EghtesadOnline: Two major auto manufacturers are negotiating with banks to boost liquidity for increasing their production by 260,000 units in the fourth quarter of the current fiscal year (December 22, 2021-March 20), according to a member of the board of directors of the Association of Homogeneous Propulsion Industries and Component Manufacturers.

“Following the change of CEOs of the two major automakers, negotiations have been held with banks to provide 50 trillion rials [$189.39 million] to each of the automakers. This payment will be used to complete the incomplete cars and increase car production. However, so far, no talks have been held with component makers to increase production,” Reza Rezaei was also quoted as saying by Khabar Khodro.

According to the Persian economic daily Donya-e-Eqtesad, SAIPA’s new CEO was appointed on Jan. 12 and the CEO of Iran Khodro Company (IKCO) was replaced on Jan. 29.

“The automotive and component industries are strategic and account for a large share of sustainable employment and economic and trade development of different countries. The CEOs of these two industries enjoy special support worldwide, but unfortunately, the automotive industry in Iran is very complex and component manufacturers are one of its complex links,” the official said.

“In the past decades and under different managements, the country's automobile industry has not only extended no support to component manufacturers, but automakers have also invariably blamed many of their problems on component makers.”

Rezaei noted that accusations blaming parts manufacturers for the poor quality of domestically produced cars are not true. 

“Parts manufacturers gained a special place for the country by importing technology and technical knowhow of parts manufacture. They are now able to make parts for cars like Mercedes Benz and BMW, if they are supplied with quality raw materials, infrastructure and production inputs,” he said.

“Delays in paying the dues of component makers have had a great impact on them, while component makers are not respected and have no place in the country.”

According to the official, the direct and indirect dues of parts manufacturers have reached 900 trillion rials ($3.41 billion).

“The government has reduced the banks' liquidity by 80% since the ninth month of the current year [Nov. 21-Dec. 21]. As a result, the payment of parts manufacturers’ dues through the purchase of debt and by banks has been limited,” he added.



Automakers’ Debt to Parts Producers

Liquidity is one of the main problems in the component manufacturers’ supply chain, as domestic auto producers have piled up huge debts.

The domestic auto industry's debts to parts makers have reached 450 trillion rials ($1.45 billion), according to the association’s member of the board.

Rezaei stressed that the massive debts have built up over the years, such that 120 trillion rials ($387 million) of the total only pertain to the previous fiscal year (ended March 2021).

Noting that parts manufacturing companies employ hundreds of thousands of people, the official warned that if the carmakers are not given a loan right away, the situation could spiral into a crisis, with many people losing their jobs.

Arash Mohebbinejad, secretary of the association – a lobbying arm of the industry and the official debt collector, said if non-payment of debt can be construed a crisis, the chronically indebted Iranian automakers have perpetually been in crisis mode.

After the previous US administration pulled out of the Iran nuclear deal and reimposed crippling sanctions on Tehran in the summer of 2018, the Iranian auto industry's woes worsened.

With nearly a million jobs at stake, the Iranian government has been more or less supportive of the automotive businesses.

Last year, the Iranian government and the Central Bank of Iran ratified an auto industry rescue package worth 100 trillion rials ($322.5 million) to help Iran Khodro Company and SAIPA settle their debts to parts makers and boost production, according to media reports.

Mohebbinejad chastised CBI for not being "helpful", claiming that the funds have not been delivered in full to the automakers yet.

"Parts makers were forced to lay off 150,000 workers after sanctions were imposed," he said, stressing that these people are still looking for a job and the situation may deteriorate if nothing is done soon.