Asre Khodro: here are rumors going around on the margin of the automotive market on an increase in the price of the local made and the imported automobiles while it is the belief of the automotive market's active agents that it is recession which still is the pivotal voice of the automotive market and there are few customers for the imported and the local made automobiles.
Reporting "Asre Khodro", Despite this, the recent expressions of Ahmad Nematbakhsh, Director of Iran Vehicle Manufacturers Association (IVMA) is indicative of submitting a request for a rise in the auto price to the Competition Council by the car manufacturing companies and the attempt by Iran's Ministry of Industry, Mine and Trade to exclude the application of exclusive goods to automobiles. Although submission of a formal request for a rise in the auto price to the National Iranian Competition Council by the managing director and the CEO of Iran Khodro Company, Sales and Marketing Manager of SAIPA, and some of the members of the Competition Council was denied but some individuals attributed the current oscillations in the prices of the local made and imported automobiles to some collusions between the home automakers and the car importers to increase the prices of the cars around the auto market. In an exclusive interview of the Khodro Emrooz Weekly with Reza Shiva, Head of The National Iranian Competition Council the best conditions and the probable changes in the prices of the local made cars which are liable to the pricing by the Competition Council in the year 2016-17 and the possibility of fulfilling the request of the Ministry of Industry to exclude the application of pricing by the Council to automobile and set the prices on the margin of the market are presented as follows.
In the Council's view, how the conditions for a change in the situation of the market for the automobiles which are liable to the order for determining the pricing instruction might be actualized?
A change in the situation of the market for the mentioned automobiles occurs in the manner that some other competitors will enter the market for these kinds of automobiles and we are going to witness diversity in supplying automobiles with an engine displacement of 2500 cc. But, the fact is that unfortunately even for the time being we are witnessing in the area of importing these kinds of automobiles no rival for the local automakers and most of the automobiles which are imported into the country involve the intermediate automobiles and the above brands in terms of engine displacement or the pricing categorization and mostly we aren't witnessing the import of the small-size and the medium-size automobiles with specifications which rest within the price range of less than 400 million IRR.
Therefore, the market for the small-size and the medium-size automobiles bearing the specifications which were defined by the Competition Council is a real manifestation of an oligopolistic market, the legislator ordains us to devise the instructions and the regulations of price-setting for these kinds of automobiles. In these situations in case the new council decides to continue the instructions of the previous year for devising instructions in order to set prices for the local cars, it leads to no problem but if it wants to manipulate the former instructions the council has powers to act on this issue.
Have the auto makers evidently submitted a request for a rise in the auto price in the current year?
Involvement or the non-involvement of the Council to devise regulations and instructions to set prices for the automobile in the year 2016-17 in the first stance depends on the results of the meeting and the considerations of the new members of the Council and it isn't contingent upon submission or the non-submission of the request for a rise in the price by the car manufacturing companies. Although in case the automakers submit a request, the council will study this subject according to the legal powers and the existing regulations in this regard. But no formal request for a rise in the price of the local made automobiles has been submitted yet and in case a request is submitted or even if it doesn't occur, the Competition Council swill fulfill its obligations on the subject of the probable continuation or alteration of pricing instruction and the regulation for the local made and the assembled automobiles.
The director of Iran Vehicle Manufacturers Association had formerly given voice to the news on the attempts by the Ministry of Industry to turn the auto pricing back to the market after pursuing the request of excluding the application of insertion of automobile by the council within the scope of exclusive goods. How much is this possible?
The possibility of excluding the application of exclusive goods to automobiles and re-entrusting the duty of setting prices to the market never ever will recur, since such undesired situations is the result of brokerage and the illegal financial intermediation and for the time being our economy should be set based on the supply and demand system and since manufacturing and supplying the loval made automobiles is exclusive and monopolistic, the price of these automobiles should be set based on an instruction and in a very clear and vivid manner and the buyer should be informed that how much customer should pay for the mentioned automobiles.
Considering these conditions why does the Ministry underscore the price-setting for automobiles on the market?
Be sure that we will no longer return to the time in which some individuals set the auto prices by penetrating the market and exercise business brokering since the current government is the government which is arranged to be reliant on the expertise job and science in taking decisions on various issues and anyone who makes claims except for the policy which is intended by the government can express his own views in a scientific and logical manner. It is evident that returning to brokerage and the middleman ship doesn't resolve the difficulty of the ailing economy of the country. An economy which is based on fraudulent financial intermediation isn't the one which will be beneficial to people and can lead to growth and development. We should admit that the era of fraudulent financial intermediation in the automotive market has expired.
Now we should have a transparent and lawful economy. When the story of resistant economy is being presented, it means that we should augment manufacturing and everything should be transparent and far from granting extra-legal privileges to special interests in the economy. In this economic method every one's salary or revenue should be in alignment with attempt, perspiration, and production not by sitting at the table in an office and earning enormous revenue or making huge incomes throughout trading and the illegal financial intermediation, since the period of these types of economic activities has expired. The esteemed authorities should be aware that nowadays the situation has changed and the current government isn't as the previous one but it has centralized on science and a healthy activity, experience, and the economic professionalism and never ever views the type of activities which are on the margin of the market, the illegal financial intermediation, and receiving extra-legal privileges by special interests in the economy to be beneficial for the society, but believes that a production-oriented and transparent economy should be dominant.
In these situations does the National Iranian Competition Council constantly interfere in codifying the pricing regulations?
The sole solution to the problem is that the Competition Council doesn't interfere in devising the instructions and draw up regulations for pricing the automobiles until new manufacturers enter the domain of manufacturing and supplying the automobiles goes under the aegis of the monopolistic market, whether this production originates from internal investments or foreign investments. The capacity of production inside the country should be augmented and a few brands of small-size and the mid-size automobiles should be liable to the regulation of the Competition Council in the pricing ranking and should be introduced to the market until the automotive market gets out of exclusivity. The buyer should have a power to choose and can act on purchasing his automobile proportionate to his purchasing power and a proper quality which is taken into consideration from among several types of automobiles which are supplied, not having just one brand of car to be manufactured and supplied and be purchased proportionate to purchasing power. When the situation is so, the market for these types of automobiles will be the real manifestation of monopoly.
Does closing new contracts of auto makers with the foreign associates such as the contract between Iran Khodro and Peugeot set the stage for diversity in supplying and exclude the application of exclusive goods for the present brands of cars which are liable to pricing?
We hope for this to happen but as far as data broadcasting is being done. In the current contracts the issue of creating a joint venture company and a common supplying of automotive products with the car manufacturers are taken into consideration but in any way which is arranged for this subject to happen, production inside the country should be augmented. If this thing happens even through merger of the automakers or through cooperation with the new associates and it leads to diversity in manufacturing and supplying the autos which are liable to the regulations of the Competition Council until the buyer of these types of automobiles have the power to choose, that time we can consider the auto market as non-exclusive in which the supply and demand system determines the price of automobile in the market.
But the foreign associates of the automakers view the pricing by the Competition Council as an obstacle to investment in Iran, what is your idea on this matter?
These words are just seeking alibi. When and where does the Competition Council set a price of more than 500 million IRR for any type of automobile or will do this? Today lots of automobiles are supplied in the country which aren't liable to pricing by the Competition Council and the new products which are arranged to be introduced to the market under the framework of new cooperative acts are the autos which are ranked over the price rank of 600 million IRR. The competition council just prices autos which their market undergoes monopoly. Now if the auto makers create a rival for supplying the automobiles which are liable to pricing by the Council due to these contracts, the Competition Council immediately expels these autos from competition scene. The council only meddles in and involves itself in devising regulations for setting prices for the automobiles which are at the price level of 50 million IRR. Now which auto brand exists which can be a rival for SAIPA products such as Pride, Tiba, and so forth or various brands of Samand, and Peugeot or the products of Modiran Khodro. These types of car manufacturing companies are potent rival to the local made cars even in the home market. Even these companies which were mentioned had some domestically-assembled autos for which they submitted the request for devising the pricing regulations to the Competition Council but since the price of these cars were high and there was no imported auto as the rival in the market for them, the council didn't set any price for them. Automobiles such as Saipa Brilliance and so on are among these auto brands which exist within this price level. There are five to six cars within this price level and the consumer can choose one from among these cars but when the consumer has a weak financial power and want to purchase a car at a low price level has no choice but to submit to the conditions of SAIPA Company.
Some believe that noting the upturn in the inflation rate there is no necessity in submitting a request for a rise in the auto price. To what extent is this rationale sound and right?
This rationale isn't sound. When we said that the rate of inflation has fell it didn't mean that the inflation rate has fell to for instance %38 in comparison to the previous years and has reached to %12; that is we still have an inflation of %12 which means that during a year we have a rise in prices by %12 and in any way the prices in average have risen.
Does the whole rate of inflation should be taken into consideration in the pricing of the auto and be received from consumer?
In the instruction of the council there is an inflation variable which embraces definite car manufacturing bases such as Pride or Peugeot 206 and so on and the manufacturing basis for each one of these cars are different from one another and for instance involves 150 constituent items of each car. The Central Bank scrutinizes the inflation rate of each one of these items and determines whether they have undergone any increase or decrease in comparison with the previous year or not. The Central Bank takes the average rate of inflation from among the sum of auto brands and submits it to the Competition Council which is called the segment inflation rate of the automotive industry and the Council by relying on this rate and the variables of productivity acts on devising framework and regulations to set a price for the exclusive cars. We should wait for devising and stating the rate by the Central Bank on the automobile to the Competition Council. After receiving the rate and inserting it in the formula for setting the price, regulations and instructions for setting price for each car will be determined. On the other hand several factors such as a rise in salary, forms of energy, and the whole items which are being used in manufacturing an automobile will be taken into consideration. But cases such as insurance or tax which has nothing to do with the auto maker don't go under such conditions. Anything which is relevant to the company price of a car and is stated by the auto makers lies within the framework of the regulations of the council. But to exercise an increase in price which is due to an increase in the rate of insurance or taxes the auto maker should also state clearly in its website that how much is the company price of a car and to what extent this rise in price is due to the mentioned reasons.
When the results of the deliberations by the Competition Council on the auto pricing regulations in the current year will be stated?
Due to the probable inflationary and excitatory results I don't want to set a date since these kinds of opinion statements will bear negative aftermath. But as soon as the Council receives the inflation rate of the auto industry and the other involving factors in setting prices to the autos the Council states its opinion on this issue.
By: Mostafa Anisi
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