Auto market not driven by consumer power

Domestic industry accused of faking shortage for higher margins. Hoang Van Minh has been seeking to buy a new car at dealerships around Hanoi for days without any success.

Minh told Thanh Nien he even offered to make a down payment first and get the car later, but the dealerships pleaded helplessness saying they did not know when the cars will be available.

Standing in front of a Toyota outlet in Hanoi, Tran Hong Khanh said all the waiting reminded him of not so good memories from the past.

“After all these days, it took me back to the subsidy era,” Khanh said. “I want to buy a car but I have to register and wait. The waiting is even longer than in the subsidy era as it takes a year and then another until your turn comes.”

Explaining the recent supply shortage, local carmakers said it was because many people were rushing to beat the year-end deadline for tax cuts.

Starting next year, consumers will no longer enjoy the 50 percent cut in value-added tax in place since February. Vehicle registration fees of 10-12 percent were cut by half in May, but they will also return to normal in 2010.

But analysts don’t find the explanation convincing as customers had already begun to have difficulties buying cars about five months ago.

At that time, dealerships said they did not have enough cars to meet an unexpected surge in demand because manufacturers had cut back on production and reduced imports amid the economic downturn.

Now the situation is repeated, and analysts doubt there is a real scarcity of cars. They said five months was a long enough period for automakers to import more car components and ramp up output, unless they did not want to do so because a limited supply would keep car prices at high levels.

Extra payment

Dealerships benefit from the status quo as well. As their waiting lists get longer and customers get more impatient, sales agents now make offers for faster delivery on extra payments between US$2,000 and $3,000.

Tran Van Quyen, director of Thai Hoa Automobile in Ho Chi Minh City’s Tan Binh District, was cited by Saigon Giai Phong newspaper as saying even the luckiest customers would not be able to receive their cars until next February.

“But if customers are ‘flexible’ and accept to pay a little bit more, they will be given priority to get their cars sooner,” Quyen revealed.

As analysts worry that local carmakers are faking a supply shortage to manipulate prices, a recent government inspection also found that car prices in Vietnam are suspiciously high.

A Toyota Camry 2.4, for instance, retails in Vietnam at almost $50,000 while in other countries it is only sold at $20,195. The gap is excessively large, considering the low capital income of local people. The country is just about to cross the middle income threshold and the average annual per capita income still hovers around $1,000.

Local manufacturers attributed the high prices to a lot of taxes. However, an inspection of six car companies by the Ministry of Finance last month found that prices are too high excluding the taxes.

According to the ministry, a Toyota Camry 2.4 was already priced at $29,539 excluding all taxes, much higher than the retail price of the same car in other countries.

Analysts said as local joint venture automakers import almost all components from their mother companies overseas, it is possible that they pay more than they should for the components to generate more profit.

Local content

The allegations against local carmakers come on top of the flak they have been taking for poor performances despite a lot of preferential treatment by the government.

Since 2004, the government has provided many incentives for the auto industry with a view to increasing the local content ratio to 60 percent by 2010. However, as of last year, the highest local content ratio achieved by a carmaker was 37 percent for a particular model, the Toyota Innova. The average localization rate for Toyota was 7 percent while other carmakers have only managed between 3 and 5 percent.

Experts said if local car makers fail to improve their production soon, they will have to face a lot of pressure from foreign cars.

Vietnam will start opening its car market in 2018 when import duties on cars from the Association of Southeast Asian Nations, the regional bloc known as ASEAN, will be completely removed.

But the pressure from foreign products has started to become clear this year. According to a report by the Vietnam Economic Times on Monday, besides 17 car brands manufactured in Vietnam, more than 10 other brands have been imported to the country by local distributors, with four of them entering the market only in the past two months.

The number of imported cars reached 66,300 in the first 11 months this year. Meanwhile, even though 16 members of the Vietnam Automobile Manufacturers’ Association have been selling cars like hot cakes, they could only sell about 110,000 units over the period, the report said, citing government figures.