There is no solution except to privatize Saipa or tolerate the status quo! / Saipa's debts are getting bigger like snowballs

While Saipa is struggling with the accumulation of deferred obligations, debt to component manufacturers and lack of liquidity, the annual production capacity of this company is significantly different from the volume of its sales obligations. The limitations of the financial resources of this car maker have also reduced the production capacity. The post There is no solution except to privatize Saipa or to tolerate the status quo! / Saipa's debts are growing like snowballs appeared first on Safir Arjan.

According to the report of Ambassador Arjan, now that statistical studies show that Saipa is still making losses and has gained more momentum in this direction, Ali Sheikhzadeh, the CEO of Saipa, recalled some of the comments about the volume of the company's sales commitments, and once again raised questions about sales policies, how to provide financial resources, and the reasons for the delay in the delivery of cars. According to Saipa's CEO, at the beginning of 1402, this company had more than one million and 113 thousand sales commitments, which were supposed to be delivered to customers by the end of 1403.

Meanwhile, Khasapa's annual production capacity is currently estimated at around 400,000 units. Therefore, the gap between the volume of obligations and production capacity, along with the accumulated debts and the problems of supplying parts, reveals the various dimensions of the crisis of this car manufacturer. But why and how this situation was formed and is there a solution to get out of it.

Amirhasan Kakaei, an expert in the automobile field, has investigated this issue.

Populist policies, including the claim of the Minister of Silence in 1400, create an obligation without support

About Saipa's production problems, the company's outstanding obligations and its liquidity crisis, Kakaei said: "The reality is that sometimes populist policies are proposed and people seem to welcome them, but the results of these policies will be known in the not-so-distant future. At that time, the official who made those populist promises is not present and can no longer be found; Because he is gone."

Referring to the policies adopted in the past years in the auto industry, he explained: "If you remember, the then minister [Sidreza Fatemi Amin] made some populist promises about the auto industry in 1400. One of these promises was to lower the price of the car while increasing production. At that time, there was also a lottery."

Kakaei further added: "When we say these promises were populist, the reason is that they were made without real support. "When the price of the car is supposed to decrease and the production increases, it should be clear where the necessary resources will come from and how this program is going to be implemented."

About the result of these policies, he said: "In practice, what happened was that not only did prices not decrease, but they also increased. At that time, the relevant minister had even proposed a 15% figure to reduce prices, but in the end this promise was not fulfilled."

Saipa's pre-sales exceeded the production capacity

Referring to the process of registration and pre-sale of cars in previous years, Kakaei said: "Furthermore, at the end of 1401, they announced that they will remove the lottery. But the question was, what mechanism is going to replace it?"

Explaining the car registration process, he added: "What happened was that the car manufacturers, i.e. Iran Khodro and Saipa, which were both controlled by the government at that time, were ordered to register the applicants. Naturally, since Saipa cars were cheaper, more applicants signed up to buy the company's products."

This automotive expert explained the difference in the performance of the two automakers in accepting commitments: "At that time, Iran Khodro, which had a stronger board of directors, largely resisted this process and accepted fewer commitments. But Saipa did a lot of pre-sale; So that the delivery of some of its cars, such as Shaheen, takes even two to three years. In fact, the pre-sales were far beyond the company's capacity."

In an extra-legal way, very heavy obligations were created and the pre-sale of Sapia cars was made against the rules and beyond the production capacity.

Criticizing the way of monitoring the pre-sale of cars, Kakaei said: "On the other hand, unfortunately, very heavy obligations were also created in an extra-legal way. I emphasize that there are rules in the Ministry of Industry, Mining and Trade according to which, if the car manufacturer wants to do pre-sales for the next year, the amount of pre-sales must be proportional to the production capacity. For example, the maximum amount of advance sales may be limited to 20% of next year's production capacity. "The duty of the ministry is to monitor so that car manufacturers do not pre-sell without support and beyond their capacity."

He continued, referring to the departure of the pre-sale process from these criteria: "But in this case, the process was reversed and Iran Khodro and Saipa were ordered to pre-sell, even if the delivery of the cars is postponed to a few years later. "In the end, heavy commitments were made, the consequences of which can be seen today."

The automatic transmissions required for the Shahin car were destroyed in the Shahid Rajaei port explosion

Referring to Saipa's liquidity problems and the increase in production costs, this automotive expert said: "Besides these issues, the country has been involved in a war and a series of strange and complicated challenges for about a year and a half."

To explain the impact of the disruption in the supply of parts on Saipa's production, he added: "For example, last year, when the Shahid Rajaei Port exploded, part of the cargo was lost, including, for example, some automatic transmissions needed for the Shaheen car." "When the number of production cars of a model is limited, the loss of a shipment containing two to three thousand pieces also causes significant damage."

Saipa is in short supply and caught in liquidity trap

Pointing to the worsening of Saipa's financial problems, Kakaei said: "Furthermore, other problems arose. "Inflation increased in the last two to three years and Saipa got into a liquidity trap."

He said about the limitations of Saipa's production increase: "On the other hand, Saipa is also facing the challenge of lack of liquidity. "When we add the war, embargo and other restrictions to these conditions, this company will no longer be able to easily increase its production capacity to 500 or 600,000 units."

Saipa cannot increase production

Referring to the difference in the production capacity of different models, this expert in the automobile field explained: "In addition, the production capacity of all cars cannot be increased equally. For example, it is possible to increase the production of Atlas, but it is not possible to increase the production of automatic Atlas or automatic Falcon. These cars need capacity building and special facilities. "Also, we cannot ignore the restrictions caused by the naval blockade and other supply problems."

In summarizing Saipa's production situation, Kakai stated: "Therefore, in my opinion, Saipa cannot increase production more than this in the current situation."

Saipa did not have the necessary credit to use the facility of 20 thousand billion tomans

Referring to Saipa's limited access to financial resources, Kakaei said: "For example, last summer, the then minister [Mohammed Atabek] increased the credit considered for Iran Khodro and Saipa by 40 thousand billion tomans so that each of these companies can receive about 20 thousand billion tomans of facilities."

Regarding the difference between the situation of the two car manufacturers in receiving the facilities, he added: "Iran Khodro was able to use this opportunity due to fewer obligations and more suitable management conditions, but Saipa could not receive the desired facilities; Because it did not have the necessary credit."

The banking system does not give loans to a company like Sapia, which is unable to repay the debt, and does not act in this case.

Explaining the reason for SAIPA's inability to receive facilities, this automotive expert stated: "The point is, why SAIPA could not use these resources?" When the bank wants to give facilities, it checks the applicant's financial situation and makes a decision based on its calculations. If the bank comes to the conclusion that the applicant cannot repay his debt, he will not easily give him a loan.

Kakaei continued, referring to the limitations of the banking system in providing facilities: "It is not possible to say that the government should order banks to provide facilities to every company it introduces; Because the central bank and the banking system have their own rules. For such an action, either there must be government resources that the government does not currently have, or the economic conditions of the company must be such that it provides the possibility of receiving facilities.

Saipa's debts increase over time

Referring to the consequences of the increase in Saipa's debts, this automotive expert said: "On the other hand, Saipa had more obligations and its debts grew bigger in inflationary conditions, like a snowball." As time passes, debts increase; "As debt increases, the supply chain becomes less cooperative, the number of bounced checks increases, and banks are less willing to provide facilities."

Pointing to the impact of inflation on production costs, Kakaei added: "80% inflation is not a small figure. For a company to be able to maintain the same level of production as last year, it needs much more financial resources. In fact, the cost required to maintain the same level of production has increased by about 1.8 times. Therefore, there are no suitable economic conditions."

SAIPA should be left out of the framework of public administration and handed over to the private sector

Referring to the management changes and the need to change the structure of Saipa administration, Kakaei said: "If the course is to change, Saipa should be removed from the framework of government management, privatization should be done and investment should be found to enter this group in a logical framework. Of course, privatization also has its own challenges.

He added about the solution to change the management of this company: "But in the framework of the government, it seems that no more effective action can be taken. Some also believe that the management of the company should be changed. I don't have a particular opinion on this matter and there may be a change of CEO, but just check how many CEOs Saipa has changed in the last eight years. Have the company's problems been solved by changing the CEO?"

The privatization of Saipa has been stopped behind governmental obstacles

Emphasizing the need to change the macro policies of the auto industry, Kakaei stated: "The reality is that some issues must be agreed upon at the governance level. For example, currently there are clearly barriers to privatization, but there is no effective follow-up to address them. "Legally, the path to privatization is clear, although people may want to do it, but this is not going to happen in practice."

He added about the need to make macro-level decisions to solve Saipa's problems: "Therefore, if Saipa's problems are to be solved, the government must make a macro-level decision to change the current path." Otherwise, changing the CEO or even the board of directors alone will not make a fundamental difference."