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Wide open road

Released at: 09:38, 07/07/2014

Wide open road

While local and joint venture automobile manufacturers and assemblers call for more incentives, luxury car makers still view Vietnam as a market rich in potential.

by Thanh Hai

Despite the decline in overall sales compared to previous years, Vietnam’s automobile market has continued to welcome the arrival of leading global car makers. With the entry of Lexus, which came onto the market at the end of last year, more than ten famous imported makes are now fighting for market share in the country, including Rolls-Royce, Porsche, BMW, Audi, Mini Cooper, Range Rover, and Lexus.

Remarkable growth

Though they hold a market share or only some 6 per cent, imported makes are experiencing significant growth in sales, coming in at over 50 per cent last year against 2012 and comparing favourably to the 19 per cent in the car market as a whole. Mr Nguyen Dang Thao, Sales & Marketing Director at BMW Euro Auto (the authorised importer and distributor of BMW in Vietnam), announced that BMW has been growing at uninterrupted high rates over the last seven years, with about 10,000 BMWs now on Vietnam’s streets. Audi, meanwhile, had also seen continued major growth over the last five years.

This growth has been maintained in the early months of this year. Figures from the Vietnam Automobile Manufacturers’ Association (VAMA) show that in March alone growth in imported vehicle sales was 62 per cent, while output of domestically-assembled vehicles rose 58 per cent. The General Department of Customs also reports healthy growth in luxury car imports, with 10,377 units being sold in the first three months, for increases of roughly 50 per cent in volume and 54 per cent in value compared with opening quarter of 2012.

Looking at the success imported makes have achieved, Ms Christine Bulang, Sales Manager at Audi AG in Southeast Asia, believes it has come from increased customer perception, especially as regards reputation, as well as sound product distribution plans, facilities, sales networks and after-sales services. Mr Thao, however, said that the entry of a wide range of makes has fostered their overall appeal and facilitated the development of Vietnam’s luxury car market.

The fact that many manufacturers are competing in a relatively small market creates fierce competition from which consumers benefit. Mr Thao added that in order to take advantage of market recovery this year, importers in the luxury segment are planning to expand by developing their business networks, introducing more products and services, among other measures, to attract customers and better respond to their needs.

Inevitable trend

At current growth rates Vietnam’s population is expected to reach 100 million by 2020. Meanwhile, the rate of car ownership per capita remains relatively modest, at under 20 per 1,000 people. Experts estimate that by 2015 this figure will be around 28 then 38 by 2020 and 88 by 2025. The current low proportion indicates that Vietnam’s motor car market possesses much potential for development. The Ministry of Industry and Trade believes the market will truly thrive only after 2020.

It can’t be denied that the potential is there but the question is how to utilise it. Turning automobiles into a key industry remains a puzzle for relevant agencies. The growth in imports is putting more pressure on the domestic automobile industry, especially with import levies on imported CBU (completely-built-up) motor cars from other Southeast Asian countries to come down to zero per cent within four years.

Mr Yoshihisa Maruta, General Director of Toyota Vietnam, acknowledged that tax reductions will create advantages for importers and the local industry will face difficulties due to competitive pressures from cars imported from the ASEAN region, especially Thailand and Indonesia. In order to ease this competitive pressure, many local joint ventures have been assembling and importing at the same time for a long period already, as a means of staying afloat.

So the recent increased appearance of imported makes along with the creation of local joint venture in the same sector proves that importing and selling CBUs is a clear trend in the market. However, to boost the competitiveness of importers, Mr Thao said that tariffs on imported vehicles need to be adjusted. The existing rate is still high, accounting for 60 per cent of the total value of each vehicle. Both importers and joint ventures have proposed uniform taxable value and tax rates for CBUs and CKDs (completely-knocked-down motor cars, with parts being imported and assembly done in Vietnam), along with maintaining the standardised excise duty.

Consistent taxing ensures healthy competition and a fair market. Mr Thao said that the government should provide a clear roadmap for the automotive industry as soon as possible, including commitments on import duties and excise taxes for the years to come. “This would help industry players in their investment planning as well as their efforts to expand sales and service networks,” he said.

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