Iran's auto production fell by more than 36 percent over the past three months, the industry ministry was quoted by ISNA news agency as saying on Saturday, citing "lack of money."
Production fell to about 241,500 vehicles in the first quarter of the Iranian year (March 21 to June 20), according to the figures.
Iran built more than 1.5 million vehicles in 2011/2012.
The decline coincides with the halt of parts deliveries to Iran by French manufacturer Peugeot because of Western sanctions.
Peugeot is a partner of the main Iranian auto maker Iran Khodro (IKCO), which manufactures the 405 and 206 models, whose output represents approximately 40 percent of Iranian automobile production. They incorporate 5-10 percent of components imported from France.
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 foreign currency.
IKCO's parts imports from Peugeot accounted for 700-800 million euros ($572-654 million) per year, according to figures available in Tehran.
The head of the Iranian Association of Automobile Manufacturers, Ahmad Nematbaksh, told ISNA that the drop in production is due to the "lack of money available to the manufacturers" given by the state, which caused a "cash crisis."
Citing industry executives, business daily Donaye Eghtesad said the decline in production is "unprecedented in the past 20 years" and could create difficulties for the entire automotive industry, including subcontractors, with plant closures and layoffs, if the government does not come forward with $1 billion in aid.
The automotive sector generates about 500,000 direct and indirect jobs in Iran, according to official estimates.