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Averting a stall

Released at: 10:20, 18/01/2016

Averting a stall

Automobile sales in 2015 far exceeded those in 2014 but policy instability might mean such growth peters out in 2016.

by Thanh Hai & Son Ho

The latest figures from the Vietnam Automobile Manufacturer’s Association (VAMA) reveal that by the end of November its members had sold a total of 215,517 motor vehicles, 57 per cent higher year-on-year. Sales of Passenger Cars increased 45 per cent, Commercial Vehicles 73 per cent, and Special Purpose Vehicles 109 per cent, which not only sets a new record but exceeds the previous benchmark set in 2009 by an impressive 160,000 vehicles.

Sales head upwards

Economic recovery and stable policies are believed to be behind the automobile market’s growth in recent years, especially in 2015. Apart from a new record being established in the first eleven months, November also saw the highest sales ever, with 29,706 vehicles sold, 86 per cent higher than in November 2014 and the 32nd month in succession of year-on-year growth.
Growth among brands varied. The standout performers in 2015 were Thaco and Ford Vietnam. Strategic vision and huge investment contributed to the success of Thaco, which was even greater than anticipated. The ability to provide quality products that meet the diverse demand of customers helped Ford Vietnam remain in the Top 3 brands in terms of sales.

Two years ago Thaco had to compete with the strongest competitor in sales - Toyota Vietnam, the giant who had always led the market. By 2015, however, Thaco had made a giant leap forward and continually held first place in sales.

Having overcome Toyota in total sales the competition between the two is only in passenger cars. Though Thaco has led the market overall, in passenger cars only it has remained behind Toyota Vietnam. The tables turned in November, though, with Thaco for the first time seeing sales of more than 5,000 passenger cars and outpacing the 4,400 Toyota sales by some distance.

Ford also saw a record November, with sales of 2,369 vehicles, for a 53 per cent increase year-on-year and its highest sales since it entered Vietnam 20 years ago. With 1,333 sold in November, the Ford Ranger - the American pickup - was the best-seller in Vietnam during the month for the first time.

After a long period of fluctuating in the market, GM Vietnam is showing signs of getting back on track in terms of sales. In November it recorded impressive sales growth of 76 per cent year-on-year, with 739 vehicles sold. In the first eleven months of 2015 it sold 6,500 vehicles of different types, up 43 per cent compared to the same period of 2014 and remarkable when compared to its sales of just a few years ago.

In the luxury category, Mercedes-Benz and Lexus both recorded considerable growth, especially Lexus. Two years after arriving in Vietnam its sales stood at 385 vehicles by November 2014, which then grew to 880 by November 2015, for growth of 170 per cent.

From a manufacturer’s perspective, Mr. Pham Van Dung, General Director of Ford Vietnam, believes the reason for the high growth is that the economy is developing stably and both incomes and the confidence of consumers are on the rise. A car is no longer considered just an asset but as a safe and convenient mode of transport for the family and one that can help a business. Improved infrastructure and lower petrol prices also make owning a car more attractive, and brands have been actively introducing new models that are suitable for local customers.

Tax disadvantages 

With fluctuations in the US dollar exchange rate and important changes in tax policies for the sector, experts believe the strong growth seen in 2015 is unlikely to continue into 2016. According to Mr. Nguyen Quang Minh, Deputy Head of the Sales Department at GM Vietnam, when the exchange rate increases manufacturers must increase their prices accordingly. The impact of exchange rates, he said, will push up the price of motor vehicles from the beginning of the new year.

The impact from exchange rates, however, is nothing compared to the impact of Decree No. 108 on special consumption tax (SCT), which was announced in early November 2015 and took effect on January 1. The SCT is to now be calculated on the wholesale price of importers rather than CIF (Cost, Insurance, Freight) and import tariffs, as previously.

Under this new method the SCT will be based on other costs such as transferring, marketing and the importer’s profit. Mr. Minh said the regulation has created myriad problems for manufacturers, with importers having little choice but to raise their prices in response. Motor vehicles with a large engine capacity are especially affected, with the Audi A8, for example, rising in price from VND4.2 billion ($186,312) to VND5.8 billion ($257,288).

Mr. Dirk Adelmann, Managing Director of Passenger Car Sales at Mercedes-Benz Vietnam, said the price of automobiles in Vietnam is now quite high compared to other countries. If prices continue upwards a motor vehicle will be unaffordable for most people.

He believes that enterprises and customers need stability in tax policies for the sector, applied on a detailed timeline and not immediately, because this negatively affects manufacturers, importers and customers. Policies - especially on taxes and fees - affect planning, pricing, and, most importantly, the purchasing decisions of customers.

Agreeing, Chairman of VAMA and General Director of Toyota Vietnam, Mr. Yoshihisa Maruta, said that adjusting the SCT will create difficulties for manufacturers in maintaining production. Manufacturers therefore hope that the government will consider this carefully and create a long-term, stable tax policy. If policies change it becomes difficult for manufacturers to determine business plans for the future. “Every change should be done gradually,” Mr. Maruta said. “The Ministry of Finance should consider this and adopt a road map to meet the interests of manufacturers, customers, and importers.

Though many challenges are waiting in 2016, automakers still expect to see growth in sales for the year. Mr. Maruta said that tax policies will be clearer and more stable this year, and along with economic recovery this should result in the motor vehicle market continuing to grow. Mr. Dung also expects that with the momentum provided by a stable economic recovery, sales in 2016 will rise slightly from the great results recorded in 2015.

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