The auto industry is a key part of the Iranian economy and the sharp decline threatens to push up unemployment in the one part of the economy that had been doing well. As the impact ripples through the economy, it also threatens to continue and deepen the recession Iran is already suffering.
The sharp cutback in output is generally attributed by analysts to sanctions—but the government, which will not admit that sanctions hurt Iran, does not say that. In fact, the government continues to insist that the refusal of foreign suppliers to send car components to Iran hurts them more than it hurts Iran.
For the first six months of the current Iranian year, from March 21 through September 20, auto production was down more than 42 percent compared to the same period last year, media reports said Thursday, citing official Industry Ministry figures.
Some 459,440 vehicles were produced over those six months, while production stood at 792,286 in the same period in 2011.
The drop, however, accelerated in the month from August 21 to September 20, with the ministry reporting a 66 percent fall compared with the same month last year.
Iran built more than 1.5 million vehicles in all of last year.
The news reports did not provide any explanation for the drastic drop.
However, the decline coincides with a strengthening of Western economic sanctions against Tehran, and the halting of parts deliveries by several foreign firms, chiefly French manufacturer Peugeot.
Peugeot had long been a partner of top automaker Iran Khodro, which manufactures the Peugeot 405 and 206 models under license. Those two models account for about 40 percent of Iranian automobile production.
Peugeot announced in February it had stopped shipping to Iran and repatriated most of its staff.
It cited difficulties created by the Western banking embargo against Tehran, which has complicated trade and caused a shortage of foreign currency.
The Iranian Association of Automobile Manufacturers said in July, however, that the drop in production was due to the “lack of money available to the manufacturers” from the state, which caused a “cash crisis.”
Citing executives, business daily Dona-ye Eqtesad said the decline was “unprecedented in the past 20 years” and could create difficulties for the whole industry, including subcontractors, with plant closures and layoffs, if the government does not come forward with $1 billion in aid.
The sector generates about 500,000 direct and indirect jobs in Iran, according to official estimates.
Iranian officials pointed out that Peugeot has laid off 8,000 employees this year and said that proved France would be hurt more than Iran by the cutoff in parts supplies. But Peugeot said earlier that it had laid off 300 staff because of the break in ties with Iran Khodro. The other layoffs were attributed to the tight current market in Europe.
If an Iranian industry employing 500,000 is seeing production down two-thirds, the employment loss in Iran could surpass 300,000.
Iran Khodro’s only response to the news reports was to say that it is planning to more than double its daily production to 2,800 by next Now Ruz. But even that figure would be a significant drop-off from production a year ago.