Iran’s oldest appliance maker goes bust

Iran’s oldest appliance maker goes bust
Arj has closed its doors after 80 years of business.
By bne IntelliNews June 13, 2016

A legacy brand from Iran’s better economic days has finally called in the creditors, according to reports from news agencies in Tehran.

The closure of Arj, a producer of several consumer appliance staples such as air coolers, refrigerators and washing machines, is seen as a public statement that under the economic policies of President Hassan Rouhani and his pro-market reform agenda no business is safe.

Arj, Iran’s oldest domestic appliance brand which was set up in 1936 by the Arjmand brothers, is reported to have said on June 10 that it had put its industrial machinery up for sale and called in the banks to take what they are owed to clear debts. Arj officials were quoted as saying the main reason for the sell-off was increasing competition from foreign brands, including the onslaught by Chinese and South Korean brands, who have persuaded Iranians to buy their sturdier and more expensive brands rather than cheaper Iranian offerings.

The conservative news agency Tasnim, believed to be supported by the Islamic Revolutionary Guards Corps, originally reported the news on June 10, after which hundreds of Iranians posted the news on social media, making the news go viral.

However, in what has become a trend lately once social media ignite over bankruptcy news, the company backtracked on the Tasnim report when the current director of Arj, Farhad Hanifi, denied to the Islamic Republic News Agency that the company is closing and is merely “looking for buyers for the property and machinery”. 

Arj originally began with a small factory producing metal products. Gradually, it broadened its range of products, increasing the number of employees to eight in the 1940s. On expanding the company, the brand moved to Tehran-Karaj Road – the main industrial area to the west of the capital – where it broadened its range to include several household appliances. 

The story of Arj is fairly common in the history of Iranian industry. It originally started as a highly profitable private enterprise, where it began offering shares to its workers in 1973 and was one of the first companies to list on the relatively new Tehran Stock Exchange.

But in 1979, like with many of its competitors, Arj was nationalized as part of the new revolutionary government’s dislike of large businesses not under national control. By 1995 the majority of its shares were then sold off to Iran’s largest state bank, Melli (National) Bank, which sold them on to different private shareholders.

Since the liberalisation of Iranian state companies in 1990s, which was part of former president Akbar Hashemi Rafsanjani’s policy of shifting inefficient companies to semi-governmental ownership, the company suffered from gross mismanagement, according to Tasnim. The news agency explained that by putting government officials into comfortable jobs with no prior experience in that sector, they rung the death knell for the company.

Other social media reports said the company was also struggling with new low quality items being shipped to them. The cooling compressors, which were placed at the rear of their refrigerators, were in later years now shipped in from China due to their low cost, which had a detrimental effect on their sales overall due hundreds of fridges breaking down.

With public opinion of the brand at an all-time low, the company over the past decade had to resort to other measures to fund itself, including renting their large property portfolio out to other semi-state companies like the country’s largest car producer Iran Khodro, which had a glut of vehicles waiting to be sold next door.

Arj CEO fights back

In later denying the bankruptcy, the director of Arj, Farhad Hanifi, told the Islamic Republic News Agency that his company over the past couple of years had produced over 2,000 air coolers, fridges and heaters and is in no way in arrears with companies who loaned them money. 

The CEO’s backtracking from the original article has become a common trend in recent months with Iranian news agencies reporting bankruptcies and then the companies in question quickly quelling public interest in their closures.

To add further intrigue to this story, another report by Eqtesad Online (Economy Online) on June 12 confirmed that the company is bankrupt, but first filed it in 2007, with the company making a loss annually from 2005, according to newly released accounts by the online news portal.

According to that site, the company lost its way during the previous Ahmadinejad administration, when 70% of its staff were laid off, falling from a high of 1,030 workers in 2006 to 306 by 2016.  

Too big to fail

The decision to let the company go bust is a turning point in the history of Iranian industry, as previously under other administrations the company would have been considered “too big to fail”, and to save embarrassment the government would quietly lend millions of dollars to keep it operating for further periods.

The Rouhani administration’s reluctance to come to the aid of Arj also marks a big difference in how serious his administration is about cutting out the chaff from the Iranian economy.

“The closure of the iconic Arj company is a weathervane for the winds of change in the Iranian economy,” William Jenkins, an Iran watcher based in Germany, said of the closure.

Years of issues in production as well as a slew of disappointing recent appointments from the public sector have seemingly sealed Arj’s fate. It also says a lot about the deeper realignments in economics and politics between the Rouhani administrations’ economic programme and the interests of other major economic stakeholders, he said.

“Arj’s closure is grist to the mill for economic policy debates in Iran at a crucial time. It will be used by all sides to make their case for more or less state involvement, as well as the crux of the debate: whether productivity growth through competition is the right path forward for Iran,” Jenkins said.