Car prices expected to increase in September

Analysts have warned that the price of cars will increase as a result of the dong/dollar exchange rate adjustment.

In mid-August 2010, the State Bank of Vietnam unexpectedly raised the official dong/dollar exchange rate from 18,544 dong per dollar to 18,932 dong per dollar.

The new exchange rate has been in effect since August 18, 2010, while the forex trading band has been unchanged at +/-3 percent, which means that the dong/dollar exchange rate quoted by commercial banks must not be three percentage points higher or lower than the official exchange rate.

Responding promptly to the exchange rate adjustment, car dealers who sell imported cars have immediately raised the sales price of imports (though the sales prices in dollars remains unchanged, the sales price in Vietnam dong has increased due to the depreciation of the dong).

At the time that the dong/dollar exchange rate adjustment was announced, domestic car manufacturers said that they did not intend to raise prices. However, analysts warned that price increases would eventually occur because car manufacturers have to import car parts to assemble domestically. As the dollar price has increased, car manufacturers have had to pay higher prices to import car parts, so they have been forced to raise car prices.

Dau tu newspaper has quoted reliable sources stating that the Vietnam Automobile Manufacturers’ Association (VAMA) has discussed the price of automobiles over the last two weeks and that it is very likely that car prices will be raised at the beginning of September. A member company of VAMA noted that profits have decreased dramatically and that many manufacturers are suffering from the shock caused by the exchange rate adjustment.

Michael Pease, General Director of Ford Vietnam, said in all countries, local currency depreciations are not good news for manufacturers, especially car manufacturers. In Vietnam, the two percent exchange rate adjustment will surely influence the sales price of car products.

Another car manufacturer revealed that the company has bank loans worth $40 million. Therefore, when the exchange rate is adjusted, the debt incurred by the company will increase by nearly 20 billion dong. “Since the principal becomes larger, the interest for the loans will also be higher. We have had no choice but to raise sales prices,” he said.

Car manufacturers and dealers predicted that car prices will increase by two percentage points on average. Several import car models may see price increases of more than two percent, while several car models manufactured domestically may see price increases of less than two percent.

Car manufacturers have complained that with the exchange rate adjustment, they are now facing difficulty accessing foreign currency to fund production costs.

According to Michael Pease from Ford Vietnam, it was easy to borrow dollars to import car parts, which helped production go smoothly. However, it is getting more difficult over the last few weeks to get foreign currency loans.

Analysts say that current conditions are not favorable for car sales. Currently, banks are lending money to people who want to purchase cars at an average interest rate of 15.5 percent per annum, a rate that car manufacturers consider to be high.

With the dong/dollar exchange rate increasing, the lending interest rate remaining high, the increased value-added tax, and the ownership registration tax, car manufacturers fear that sales in 2010 will be the same or even lower than sales in 2009.