The meeting was attended by Mohammad Shahpari, a member of the board of directors of the Automobile Parts and Assemblies Association, Mansoor Mansouri, the Secretary of the Automobile Parts and Assemblies Association, and Hasan Karimi Senjari, an expert in the automotive field. During the meeting, the guests of this program discussed issues such as parts manufacturers' demands from car manufacturers, the rise of parts imports from China, the impact of the country's parts manufacturing on the production of electrical products, as well as the import of new and used cars, as follows.
The peak of the import of parts from China
The auto parts exhibition was held in a situation where the presence of Chinese companies in this exhibition was impressive. Although some experts called the presence of the Chinese as an opportunity for the automobile chain, others call the Chinese a threat to the country's parts production. Accordingly, at the beginning of this program, Mohammad Shahpari, in response to a question about the high volume of auto parts imports from China and also the strong presence of this country's parts manufacturers at the auto parts exhibition, stated that according to published statistics, one billion and 400 million dollars of foreign currency Automobile manufacturers have been allocated, and a very small share of this amount goes to domestic automobile manufacturers and parts manufacturers, and the rest of these sources of currency have been given to private automobile manufacturers who import parts in the form of CKD or SKD.
He emphasizes that this is the most important issue that threatens domestic car manufacturers and parts manufacturers in the current situation. Even domestic car manufacturers were not allowed to use domestic products for some parts. All these parts are imported directly from China. He goes on to say: On the other hand, domestic car manufacturers' products are subject to mandatory pricing, which has resulted in accumulated losses of 130 thousand billion tomans. Does this deal with private car manufacturers that have contracts with Chinese companies? Next, we asked Mansour Mansouri, the secretary of the Automobile Parts and Assembly Manufacturers Association, about the Ministry of Safety's letter to vehicle manufacturers regarding the use of foreign currency from exports to meet production needs and its impact on automobile manufacturing.
In this regard, he emphasized: This letter, which was sent to vehicle manufacturers on August 21, does not include component manufacturers, and the Nimai currency is still valid for component manufacturers. Nevertheless, this news shows that the high-circulation products of Iran Khodro and Saipa will not be subject to price increases and the conditions will not change. He continued that the central bank should facilitate the supply of foreign currency for the component manufacturers. Even if we are entitled to this currency legally, but it is not done at the right time, we will have to use other sources of currency, which will lead to an increase in prices. On the whole, this notice is positive for component manufacturers, but it is not enough and the central bank needs to supply foreign currency on time.
In another part of this meeting, a question was raised in line with the growth of the demands of the parts makers from the car manufacturers. Hassan Karimi Senjari, referring to the significant debt of the car makers to the parts makers, said about the reasons: parts making and car manufacturing are two links of the car supply chain. Everything that happens financially, productively or innovatively in the automotive industry is somehow dependent on parts manufacturing. The financial relationship of car manufacturers and parts manufacturing is very important. If the car manufacturer suffers a loss from the entire production and sales process, it will also be transferred to the rest of the supply chain. In another part of his statement, he stated that currently, due to mandatory pricing, car manufacturers have suffered a negative cycle of working capital; Because the finished price and the selling price of the product do not match. Therefore, the car manufacturer has to attract financial resources outside its business space or reduce some of its costs. One of these expenses is the payment of the debt of the component manufacturers. Therefore, the justification of this amount of car manufacturers' debt to parts manufacturers is the negative cycle of car manufacturers' working capital.
The role of parts makers in reducing summer production
The production statistics in July show a decrease in the circulation of automobile manufacturers in this month; However, this process is expected to continue in August. In this context, Mohammad Shahpari was asked if the parts makers played a role in the reduction of car production in July and August, and he said: Considering the currency problems, it was quite clear that the parts are supplied through warehouses. Currency problems have caused the warehouses of car manufacturers and parts manufacturers to become empty. In a situation where it takes a month to register an order and it takes 45 days to get a currency code from the Central Bank, it was not far from expecting that the warehouses would be empty.
Today, automobile manufacturers are facing challenges, and with the order of the Ministry of Security to supply currency by the automobile manufacturers themselves, their problems are doubled. In this case, it seems that car manufacturers have to spend a lot of capital and buy and export some products such as petrochemicals or even dry fruits in order to be able to provide the currency they need. This issue puts additional pressure on component manufacturers. The component manufacturers are facing liquidity problems and the long time of supplying them with foreign currency has caused them to have a problem of emptying their warehouses. He mentioned that when the Ministry of Security announced that Iran Khodro should produce 900,000 cars and Saipa 800,000 cars, these problems were predictable.
In this meeting, a question was asked about the role of the parts produced by the car manufacturers in the poor quality of the car manufacturers' products, and Mansouri stated that statistically, 68% of the parts fail, 26% is related to the car manufacturer's production and assembly, and 6% is related to car design. The part maker's share of the quality of the part is below 30%, because the basis of the work is related to the design that has been done in advance and then provided to the part maker. Therefore, the quality of the parts is according to the standards of the car manufacturer. He continued that the cause of consumers' dissatisfaction is that the platforms of high-volume cars are old, and it is definitely not possible to satisfy today's customers with an old design. He continued: When the car manufacturers do not pay the demands of the component manufacturers, the development and domestication plans of the component are postponed, which also leads to the growth of the currency of component manufacturing.
In continuation of this issue, Shahperi stated: The component companies are about 30 to 40 years old. After the seventies, we got the know-how and hardware of parts making from big European companies. Regarding the quality of parts, the issue of embargo should not be ignored. After the sanctions started, none of the companies managed to work with European, American and Japanese companies. As a result, most of the parts manufacturing companies, which are estimated to be more than 90%, turned to China and some went to South Korea. The hardware we got from European companies in the past decades is obsolete today. We need to make new investments, but due to the demands from car manufacturers, the parts maker is no longer able to invest.
The challenge of component manufacturers with electrical products
Minister Samet has made a serious decision to produce and import electric cars, which seems to create challenges for the parts industry. In response to a question about the Ministry of Safety's efforts to introduce electric vehicles to the country and the challenges of this issue for parts manufacturers, Mansouri said: Mr. Wazir stated the general strategy related to the automobile industry, but whenever a general strategy is discussed, it should be seen that What is its time frame and how is this strategy supposed to proceed. But currently there are challenges facing the automobile and parts industry that must be solved. Consumers need cars and car manufacturers have obligations.
Investments in internal combustion engines are also underway. For example, three-cylinder engines are supposed to be produced, which are low-consumption, and other parts such as automatic transmissions, which are the needs of the market and consumers, should be invested in, because they increase comfort and safety. Even if internal combustion vehicles are to be produced in the medium term, these investments should be made, because considering the high circulation of Iran Khodro and Saipa, these investments are economical in the medium term as well. He continued that in the case of electric cars, which is the general strategy of the auto and parts industry and the minister has announced that we are still at the beginning of the road, the relevant infrastructure and investments must be made.
Karimi Senjari also said in this regard: In today's world, companies that cannot be development oriented and update their products according to the market's taste are doomed to failure. A company in today's world is successful if it can incorporate new products, designs and parts within itself. Therefore, a company that is not innovative cannot be successful in today's world. He further emphasized that innovation depends on profitability. Based on this, a company that is not profitable cannot innovate and therefore be successful in the market. He continued: Companies that want to be innovative must have up-to-date machinery and automation. If the automobile industry complex in Iran was not unprofitable by imposing a mandatory price, we could certainly produce high-quality parts and products today. The country's parts production has the possibility to be connected to the world's car supply chain and not dependent on the domestic car industry.
In response to a question about the requirements for achieving the production goal of the Ministry of Safety, i.e. the production of one million and 700 thousand cars in 1402, Karimi Senjari said: Achieving this goal exists in terms of capacity in the country's car manufacturing and parts manufacturing, and we have had a history of it before. . Last year, the production circulation reached 1.350 thousand units from 700 to 800 thousand units in the previous years. Of course, due to wear and tear of machinery, there may be a problem in terms of capacity in some areas of component manufacturing to achieve this goal. Of course, in a general view, it seems that we have no problem in terms of capacity in achieving the production of 1.7 million units, but the main problem is related to the negative working capital cycle, which is immediately transferred to the parts maker.
He continued: Therefore, the necessary liquidity must be provided from outside the business, which will be very high figures for the government and is not within the budget of the countries. So as long as there is a loss, there will be a lack of liquidity, which will affect the part maker. Therefore, the goal of the policymaker can be achieved when the problem of the negative cycle of working capital and the lack of liquidity of automobile manufacturers and, accordingly, parts manufacturers, is solved.
In the continuation of this meeting, we asked Shahperi whether the import of new or used cars will have an effect on the regulation of the car market, to which he replied: No one is against the import of cars, of course, provided that it is done on the basis of principles and not based on the current conditions. If a limited number of cars are imported, it can create an incentive for car manufacturers to compete. But in the current situation, such actions only take out the currency of the country and open the feet of a series of Chinese companies in the country. Importing used cars is one of the most important mistakes that can be made.
Mansouri also said in this regard: The parts makers are not against the import of cars, and certainly the import of cars can regulate the market and we also support it. The issue of assembly cars is that when a limited number of parts are domesticated, the tariff is greatly reduced. In fact, it is as if the policymaker has encouraged the importer to become an assembler. There should be an intelligent view on policies and the currency conditions of the country should also be taken into consideration. If the import is to be done, it should be in the form of CBU. But if the import is to be done in the form of CKD, the tariff should be such that the car manufacturer is encouraged to domesticate.
In the case of second-hand cars, it seems that we can import more cars due to the currency restrictions. If these second-hand cars are models that were previously in Iran, the issue of after-sales service can be controlled for them; But if it is a new car, problems related to after-sales service will be faced by consumers.
In response to the same question, Karimi Senjari said: Policymaking should be done in a way that prevents unlimited and easy profiteering. The fact that car assembly is more profitable than car production by designing a platform and creating a supply chain, despite the high exchange rate, creates problems. If there is to be profitability in this industry, the conditions must be the same for everyone. One of the duties of the government is regulation. Therefore, the difference between production capacity and market needs should be included. Why did they close the car import door for four years? If 30,000 cars were imported every year, we would not have this crisis in the car market today. Now it is suddenly decided that these years will be compensated and anyone can import a new or used car of any quality. This policy is not correct. First, it should have been allowed to import new cars, see its effects in the market, then talk about importing used cars, which has many complications for the automobile industry and has many hidden costs for the buyer. Referring to the issue of export, Shahperi said: "For export, we must work seriously on quality and price."
We have the potential to have a serious export today in component manufacturing. Some parts manufacturers are exporting to South Korea. Therefore, component manufacturers have the knowledge and ability to export, but the platform must be provided and the price must be competitive. The production line should move towards automation so that we can reduce the finished price and increase the quality.
In response to a question about the requirements of ending dependence on domestic car manufacturers and expanding exports, Mansouri said: Parts manufacturers have differences from each other. Some were able to promote domestication and make good investments on production lines; But some others even their machines are worn out. The same is true of dependence on car manufacturers. Some of them only sell their products to Iran Khodro, some to Iran Khodro and Saipa, and others have expanded the market and sell in the market in addition to two car manufacturers. The next step is export, because Iran's component manufacturing has the ability to enter the market of neighboring countries. Our component makers will be present at the Moscow exhibition and an exhibition is also scheduled to be held in Africa. It can be said that these exhibitions are good platforms, but what promotes the development of exports is to leave the market free. The Minister of Peace also opposes mandatory pricing.
Privatization of car manufacturers with the capital of parts maker?
We raised the question with Karimi Senjari whether the parts makers are suitable for buying shares of the automobile industry or not. In this regard, he replied: The sales of the automobile industry in 2022 were about 1.8 trillion dollars, and about 400 billion dollars were the sales of parts manufacturers to car manufacturers in the world. Therefore, automobile manufacturing business and parts manufacturing business are two completely separate issues. Some component manufacturers have entered and become known as platform builders when it comes to electric vehicle platforms. If a parts manufacturer wants to become a car manufacturer in an environment like the current business environment, it will face a conflict of interest. The parts manufacturer and the car manufacturer must go their own way. The entry of parts makers into the automobile industry has been a policymaker's mistake so far.
Regarding his prediction of the automobile industry until the end of the year, Mansouri said: We hope that the facilitation of production, the increase in circulation and the new directive of the Ministry of Safety, which allows parts manufacturers to continue using the Nimai currency, will ultimately cause the production of automobiles this year to exceed last year. . However, it should be noted that we lose the production of three thousand cars every day.
In response to this question, Shahperi said: My prediction is that this year the problems of automobile manufacturers and parts manufacturers will double. Considering the currency dependence of these producers and the existing conditions and the decisions that are made, it can be said that we will have more currency problems this year. Finally, they will be able to allocate the currency from exports to basic goods, so it seems that there will be no currency left for car manufacturers and parts manufacturers. When automakers are told that they have to provide their own foreign currency, their problems are doubled, that too in a situation where they need more foreign exchange resources. Minister Samat himself also says that he is looking to sell the car on the commodity exchange. If the currency issue is a prelude to price liberalization, we agree with it, of course, on the condition that the car manufacturer also maintains the supply.
Mansouri further stated: Policies that cause shocks cause problems for everyone. If the policies are going to change, it should be in a process. If the same thing happens to car manufacturers and they have to provide their own currency, the schedule should be determined from now on. The daily production of the car manufacturer in terms of production and employment is an important issue that we cannot shock. Automakers and we as parts makers are looking to offer our products at an open price. In response to the issue that apparently the first step of freeing the price with currency has been taken, Karimi Senjari said: How much export power does our automobile industry have so that the automaker can provide the currency it needs through exports? It is also meaningless to make foreign exchange through the export of other products.
He further emphasized: two approaches must be realized in the car industry of the country. One of these cases is competitiveness. In this approach, the profitability of automobile companies should be considered. Therefore, the financial circulation of these companies must be provided. That is, the Minister of Safety should adjust his policies in such a way that car manufacturers become profitable and can produce a competitive product. The competitive product has both high quality and reasonable price. Another approach is to focus on new technologies. Mr. Wazir also emphasizes on electrification. Years ago, it was predicted that by 2030, a total of 30% of the world's car demand will be allocated to three electric, collaborative and self-driving products.
Therefore, in our country, it will not be possible to move 100% of the market's demand towards electrical appliances at once. We need parts makers with the same current processes and fossil fuel cars for years. So we have to go to the development of the current component industry. Along with that, we should go for the electrification of public transportation. We should aim to allocate 10% of the market's demand to electric cars within the next four years. Therefore, I have this advice to the policy maker that the programs are appropriate to the coordinates of the country.
In this regard, Shahpari said: Electric cars are the best option for our country with this level of air pollution. But my question is whether its infrastructure is available in Iran? When the power of the factory is cut off twice a week, will the power plants really meet this need? If someone wants to travel from Tehran to another city, will these infrastructures be available in that city as well? Therefore, infrastructure should be provided first and be looked at realistically. Cars are being produced in Europe and are being domesticated in China that have built-in generators that charge the car continuously, these things are suitable for our country.