Top gear for car-makers

The big global car-makers are still prospering in Vietnam’s darkening auto market

After deciding to pump an additional $10 million into expanding its production line  last year Mercedes Benz Vietnam general director Udo Loersch said the German car-maker would continue to expand production in Vietnam this year rather than focusing on import and distribution operations.

It’s the same story at Vietnam Suzuki Corp, a subsidiary of Japan’s Suzuki Motor Corporation, and Nissan Vietnam - the joint venture between Japan’s Nissan Motor Corporation and Malaysia’s Tan Chong Holding Berhad also affirmed plans to continue investing in production lines in Vietnam, despite the ongoing gloomy market conditions.

While Suzuki is preparing the construction of a new 5,000-car manufacturing plant in southern Dong Nai province – announced last November, Nissan Vietnam general director Choo Hong Chow said Tan Chong Holding Berhad was also building an assembly plant in central Danang city which would start manufacturing Nissan cars in 2012.

These moves have dispelled concerns that foreign car-makers would stop investing into production in Vietnam in the wake of a slump in sales. Statistics from the  Vietnam Automobile Manufacturers’ Association (VAMA), which represents 18 domestic and foreign car-makers in Vietnam, showed the total sales volume of its members in January 2012 was just 4,274 units, down 60 per cent on-year.

VAMA new chairman Laurent Charpentier said the drop was partly caused by recent registration fee increases in Hanoi and Ho Chi Minh City, where fees climbed to 20 and 15 per cent, respectively on January 1. “The new tax policy is indeed an unfavourable factor for the automotive industry. However, it is likely to have [only] a minor impact on the long run,” he said.

Charpentier, who is also the general director of Ford Vietnam, said the potential of Vietnam’s auto market had significantly improved in recent years. “Opportunities are still there for those investors who have strategic visions. And Ford Vietnam is no exception. I do believe the Vietnamese appetite for vehicles remains high,” said Charpentier.

In his view, since the price of cars is already high in Vietnam, customers who tend to buy cars would not easily change their purchasing decisions because of a tax increase. In fact, the high registration fees have only been imposed in Hanoi and Ho Chi Minh City to reduce the volume of individual cars on the streets and ease traffic congestion pressures. Therefore, there should be no change in demand in other areas, he said.

Hanoi and Ho Chi Minh City remain the two biggest market places for car-makers in Vietnam, but industry insiders also see rising demand in other cities and provinces where they can expand business operations.

Luong Hong Thanh, marketing director of Vietnam Suzuki Corp, cited Can Tho and Haiphong as promising market places for car-makers. Meanwhile, Charpentier said the demand in the central region was growing. He said he had seen two cities in this region “growing their vehicles  at a much higher pace than both Hanoi and Ho Chi Minh areas”. “The potential is absolutely there,” he said.
According to Chow, the increase in registration tax may continue temporarily slowing vehicle sales to a certain extent, vehicle sales depend heavily on actual economic conditions where a slowdown is on the cards. Vietnam’s economy last year grew at 5.89 per cent on-year, compared with 6.78 per cent in 2010. The country is facing high inflation, which was 18.13 per cent in 2011 and that has forced the government to tighten fiscal and monetary policies.

But, the government has announced plans to restructure the economy. This along with the stability of the local currency and a low trade deficit level means car-makers expect a recovery in Vietnam’s automotive market.

“My forecast is that VAMA sales will be slightly up in 2012 against 2011,” said Charpentier, adding the biggest hindrance for automotive development in Vietnam was the country’s poor infrastructure, not government tax policy.

In further good news for this country, even though the import tax for cars from South East Asian countries will be zero by 2018 under Vietnam’s AFTA commitments, car-makers will still produce in Vietnam.

“The import tax exemption will be imposed on cars manufactured in ASEAN, reducing the price of imported cars from this region. But I believe car-makers still have to maintain production in Vietnam because the production lines in other ASEAN country like Thailand will not able to satisfy demand in both Vietnam and its own market,” said Luong.

Charpentier believed the two natural disasters last year in Japan and Thailand were a “unique opportunity” for Vietnam to become a credible alternative to its neighbours such as Thailand or China.

“There’s an imperative need to develop and attract more global suppliers in Vietnam to create a sustainable automotive supply base here. This is a major initiative to reduce the cost of building vehicles in the country,” he said.

Last year the Vietnamese government introduced a new strategy for the development of automotive industry until 2020 and started to develop a hub for automotive industry in central Quang Nam province. Some foreign automotive component suppliers also set up production facilities in Vietnam.

“In my opinion, this is definitely a very positive signal for the further sustainable development of Vietnam’s auto industry. This move, however, will have to be strengthened to become a true supply base that the current original equipment manufacturers assembling vehicles can rely on. As the result, customers will be able to enjoy better prices for vehicles,” said Charpentier.