Domestic automobile manufacturers getting crowded out by imports

Vietnam's FTAs are heavily boosting car imports from the ASEAN

According to the report on the Vietnamese automobile market after the entry into effect of the ASEAN Trade in Goods Agreement (ATIGA), which has just been released by the Ministry of Industry and Trade (MoIT), completely built-up (CBU) vehicle imports from ASEAN countries have raised sharply.

In 2018, 81,609 cars were imported into Vietnam, valued at $1.8 billion, down 16 per cent in volume and 19.8 per cent in value compared to 2017. However, in the first half of 2019, 75,438 cars were brought into the country at the value of $1.68 billion.

These figures imply 5.13 times higher quantity and 4.13 times higher value compared to the same period last year, and almost equivalent to the value of the entire last year.

"Based on the speed of CBU cars flowing into Vietnam over the last quarters, their number, especially under-nine-seat, is anticipated to increase sharply and remain high in the next years," the MoIT reported, adding that cars with fewer than nine seats imported to Vietnam make up 70 per cent of the total CBU volume as there is high demand for these cars for individual and business use alike. Besides, the price of these under-nine-seat cars is also decreasing as taxes are being removed (in accordance with the ATIGA) and special consumption tax on small-capacity vehicles are reducing.

Thailand and Indonesia are two countries exporting the most CBU cars to Vietnam. For example, although Mitsubishi set up a factory in Vietnam 20 years ago, of the six models it is selling in the country only the Outlander is assembled here at the volume of 1,743 vehicles, while sales of the brand reached 12,409 vehicles in the first half of the year, which are mostly imported from Thailand and Indonesia.

Meanwhile, the automobile output of Indonesia is 2.2 million vehicles annually, only 1 million of which are consumed domestically. That is why they are exploring new markets. Of these, Vietnam, which has already removed importing tax on cars, is a potential market with dense population and in close proximity to Indonesia.

Regarding domestic manufacturers, the number of cars assembled by Huyndai Thanh Cong Vietnam Auto JSC and Truong Hai Auto Corporation (THACO) in 2018 was 144,960 vehicles, capturing 45.7 per cent of total domestically assembled and import cars in circulation. Hyundai Thanh Cong has also raised capacity to 61,460 from 28,383 vehicles in 2017.

In the first half of this year, these two corporations produced 81,595 vehicles, raising capacity by 10.8 per cent, but only accounted for 40 per cent of the total number of cars on the market.

"The proportion of domestically-manufactured cars is declining. Therefore, solutions should be set out to make the domestic automobile industry more competitive as the cars imported from ASEAN countries are no longer subject to tax, according to the MoIT.

However, Vietnamese authorities have been pondering a solution to develop domestic manufacturing while opening the market up for imports without coming up with a workable fix. As a result, the more than 96 million local market is going to belong to Thai and Indonesian manufacturers.

(Source: Ministry of Industry and Trade)