The car market before Lunar New Year in previous years often becomes more vibrant than the rest of the year. However, it has been relatively quiet in the lead up to the festive season this time around, despite selling prices dropping in remarkable fashion.
|Auto dealers bemoan slower festive period, photo Le Toan |
While in October and early November the price of some car models raised slightly due to the increase in input costs, logistics, and exchange rates, cuts of 5-10 per cent have been seen in recent weeks. In addition, companies have been issuing promotional campaigns involving zero registration fee, free accessories, or direct discounts on selling prices.
Despite the efforts of showrooms and dealers, the market remains hushed. Vu Manh Hung, who visitied one showroom in Hai Ba Trung district in Hanoi, explained why he chose not to purchase. If he decided to purchase the vehicle he was interested in, he would have to borrow about $17,400 from a bank over five years. While the current interest rate is 13 per cent in the first year, the following years will float according to the base interest rate.
“So I would have to pay the principal amount of nearly $290 and about $190 of interest every month. By the time the debt is paid off, the car would cost about $5,600 more in additional bank interest, which is just too expensive for me,” said Hung.
Truong Van Nam, owner of the showroom, said that situation is not uncommon and that, since the third quarter, it has been very difficult for customers to access credit.
“Some banks are providing loans for buying cars with interest rates up to 13-15.5 per cent annually in the first year, and at floating interest next years, and these figures were at 9.5-9.9 per cent in past years,” said Nam. “At foreign banks, the interest rates are more affordable at 10-11 per cent, but the requirements for documents and loan conditions are too strict for all buyers.”
Besides the challenges of interest rates, banks also tighten loans for buying cars because the room is small. Even after banks were allowed to relax their credit room, the situation has not yet improved. To get a loan, a customer must have a high profile.
“Especially, although banks do not force customers to buy insurance while borrowing money, most credit officers ask them to buy an insurance contract along with approving the loan due to the limited credit room. This also makes customers reconsider the intention to buy a car,” added Nam.
He said that compared to the beginning of the year, sales in his showroom have dipped by about 40 per cent. “We set a target of selling 200 cars in December, but at the current status, it is unlikely to be achieved,” Nam said.
Struggling with such difficulties, dealers have suspended orders with car manufacturers. Nam said that dealers usually order about 3-4 months before receiving cars. “Because the market in the last months was unexpected and uncertain, plenty of cars are ready, but outputs are stuck. We make no profit or very little, so we do have not enough money for new orders,” explained the showroom owner.
In the used car market, the situation is also gloomy. La Trung Tinh, manager of a used car showroom in Ho Chi Minh City’s District 7, said that the revenues of the last two months are at 20-30 per cent the size of the previous month.
“At this time, used car models in the affordable segment with prices ranging from $17,000-22,000 garner more attention because they are affordable to buy and sell. And buyers have enough cash available with no need for bank loans. With the segment higher than $50,000, at this time, we have sold without any profit,” said Tinh.
Showrooms up in the capital are also impatient because they have got numerous cars to sell before Lunar New Year, but the purchasing power is not as expected. “Even during the pandemic, showrooms were never as sluggish as currently,” said Nguyen Phuong Thao, a representative of a luxury car dealer in Hanoi’s Long Bien district.
“In previous years, we constantly imported new items to meet the increasing demand of the market at this time of year. For a month now, the market has slowed down, so the selling prices of used cars are going down day by day,” said Tinh.
Auto dealers said that in addition to difficulties in bank loans, the hibernation of the car market in general is being caused by the general economic downturn as well as negative fluctuations in the real estate market, stock market, and corporate bonds.
According to the Vietnam Automobile Manufacturers Association, the sales of its members in November reduced by 0.5 per cent on-month, to around 36,370 cars.