Car prices blamed for sluggish automobile industry growth

The number of imported cars in November was equal to the previous month, but the volume of sold imported cars had nearly doubled.-Photo news.zing.vn

The information was discussed by participants at the seminar on the real situation of the automobile industry and spare parts in Viet Nam, held in Ha Noi on December 8.

Nguyen Thi Thuy Xuan, an official from the Trade and Industry Ministry's Institute for Industry Policy and Strategy, said the price of cars in Viet Nam was more than in other countries including Indonesia and Thailand.

She cited some examples of vehicles in the middle segment. The prices of Toyota Vios and Toyota Innova were VND570 million and nearly VND800 million in Viet Nam, while in Indonesia they were VND265 million and VND282 million, respectively. Similarly, Honda CRV 2.0AT in Viet Nam was more than VND1 billion, which is about VND600 million higher than that in Indonesia.

Thuy said the price of cars in Viet Nam was three or four times higher than that of other countries because the vehicles had to suffer various kinds of taxes and fees, which occupied 40 per cent of the car value, and production cost for a car was 20 per cent higher than that of other countries.

"The domestic auto market has grown strongly in recent years. Although Viet Nam had produced a number of auto spare parts, the rate of purchase is still low. The car body is the most imported product," Thuy said.

Weak technology

Pham Anh Tuan, representative from Toyota Motor Viet Nam said the scale of the Vietnamese auto market was lower by 5 per cent to 10 per cent in comparison with Thailand and Indonesia as it had a weak support industry. Meanwhile, the price of cars had been absorbing too many expenses related to taxes and fees, leading to such high production costs.

"Almost all automakers in the world are present in the ASEAN region and Viet Nam. They have met success in other nations but not as yet in Viet Nam," Tuan Anh was quoted as saying by phapluattp.vn.

He said Toyota had to itself invest and produce many devices because there was no supplier in Viet Nam. Car bodies and exhaust pipes are an example. Of the 18 domestic spare part suppliers, most of them were subsidiaries of parent companies from Japan.

"The domestic businesses supplying made-in-Viet Nam parts for Toyota will have to give a price lower than that imported from Thailand. This is proving very difficult for them because their technologies are too weak," Tuan Anh said.

Domestic automaker worried about bankruptcy

According to Deputy Chairman and General Secretary of Vietnam Association of Mechanical Industry (VAMI) Dao Phan Long, it is necessary to acknowledge what Viet Nam had done for the automobile industry in the past 20 years.

"Policies on the auto industry have failed on two fronts. Firstly, the foreign investment businesses has failed to localise expensive spare parts. Secondly, Viet Nam has not yet received a good auto trademark," Long said.

Under the free trade agreements in ASEAN countries, the import tax of automobiles from ASEAN will be cut to zero per cent by 2018. This commitment has been pressing on the domestic auto production and many automakers face the risk of shutdown.

To solve the problem, improve competitiveness and reduce car prices, Thuy suggested reducing taxes and fees. It needed to focus on a tax on spare parts, which were imported to be assembled in the country, and consider decreasing special consumption tax at suitable levels to avoid making the market ‘too hot'.

"The government needs to create conditions for businesses to develop the support industry, especially car bodies," Thuy said.

Long said the Vietnamese market was so large and attractive that many producers wanted to jump in. However, while the country could not wait for localisation of automobile parts from foreign investment businesses in the domestic market, it was necessary to improve the development of the domestic industry by producing suitable products.

Sharing the opinion at the conference, Tuan Anh proposed that businesses maintain production and increase output as well. They should create conditions to attract investment and increase the localisation rate in order to lower production costs. The current high production cost was due to the fact that the auto producers had to import more than 80 per cent of parts, shelling out more on packaging, carriage and import tax as well.

At the conference, the participants agreed that the country's potential was high to develop the automotive industry. By 2020, the average income was predicted to be $3,000 per head while the consumption volume would be 400,000 units.

Imported automobiles increase

According to reports from the Vietnam Automobile Manufacturers' Association (VAMA) and General Office of Statistics, the number of imported cars in November was equal to the previous month, but the volume of sold imported cars had nearly doubled.

The revenue of imported cars in November was double that of October while locally assembled cars dropped slightly, according to report from VAMA.

The report showed that more than 29,700 units were sold in November, increasing by 33 per cent compared with the previous month. Of these, the number of locally-assembled units dropped by 7.6 per cent to 17,129 while the import units increased by 95 per cent to 12,577.

According to the General Office of Statistics, about 14,000 cars were imported in November, making a turnover of $240 million – nearly equal to the previous month. It is estimated that 120,000 units were imported in the first 11 months of this year, totalling $2.58 trillion, increasing by 83 per cent in quantity and 91 per cent in value compared with last year.

The experts said that the big change in imported car revenues came from policies of taxes and fees which were recently issued as well as the market's growth.

In early November, the government issued Decree 108 to adjust the calculation of special consumption tax which will be effective from January 1, 2016. As the tax will rise so will the price of imported cars.

The customers have only November and December to buy imported cars to avoid the high price after the decree comes to effect early next year.

In addition, the import of cars was previously limited in a small number of luxury cars with a value of some billions of dong, but now customers imported various cars costing VND400 million to luxury cars worth tens of billions of dong.

With the sale of 215,517 in the first 11 months of this year, the auto market has seen a strong potential in the future as it much higher than that of the same period of previous years. If the growth is maintained, the sector may reach 230,000-240,000 units this year, far from estimated figure of 150,000 given by VAMA early this year.