Auto car market booming before the “curfew”

Vietnam is still considered a potential market for car manufacturers despite the recent decisions by state management agencies to restrict private cars.

Upgrading the infrastructure, building more parking lots, applying necessary measures to ease the traffic congestion and creating favorable conditions for the development of the automobile industry are all the suggestions by the EuroCham in Vietnam. The suggestions prove to be contrary to the measures chosen by local authorities of big cities to restrict the development of private cars – raising fees and charges.

Local authorities have been trying to restrict private vehicles by raising the car ownership registration tax and the number plate granting fees. However, the demand for cars of Vietnamese people, in the eyes of car manufacturers, remains very high.

“Private car market segment has been witnessing splendid growth, despite the difficulties of the market in general,” said Akito Tachibana, General Director of Toyota Vietnam in early November 2011. He estimated that about 145,000 cars would be sold in 2011.

However, the figure would be even higher as people are rushing to buy cars now to avoid the ownership registration tax increase which will take effect from early 2012.

With the sharp increase of the ownership registration tax from 12 percent to 20 percent in Hanoi, and from 10 percent to 15 percent in HCM City, and the sharp increase in the number plate granting fee from 2 million dong to 20 million dong, consumers would have to pay 50 million dong more for a car worth 300 million dong.

The people, who plan to buy a Fiesta 1.4L now priced at 519 million dong, would rather to buy it now and pay 64.28 million dong in charges and fees, than buying later and paying 123.8 million dong in charges and fees, when the new decision takes effect.

Analysts have commented that the movement of people rushing to buy cars in the last days of the year shows that the economic difficulties in 2011 are not a big obstacle for consumers who want to buy cars.

Of course, car manufacturers now feel worried about their production plan for 2012; because the car prices tend to increase, while the economic difficulties still exist.

The application of the new luxury tax since April 1, 2009 led to the sharp fall of 50 percent in the sale of Toyota’s Innova model in 2008 (16,000 cars), while only 7500 Innovas were sold in 2010.

Due to the sharp fall of the sales, Toyota Vietnam has to stop the investment program to increase the locally made content ratio for Innova model, after it reached the localization ratio of 37 percent.

“Automobile manufacturers in Vietnam need to see a long term policy in order to follow the long term investment strategy in Vietnam,” Tachibana said.

Regarding the issue, EuroCham thinks that the government of Vietnam needs to expand the program to develop the road transport system as a major plan to develop the national economic growth.

EuroCham still highly appreciates Vietnam’s opportunity to become a big car export and manufacturing center in ASEAN. However, in order to turn the opportunity into realistic, EuroCham said that the government of Vietnam and automobile manufacturers should sit together to discuss a clear roadmap for the auto industry development from now to 2018, when the car import tariff ASEAN drops to zero percent.

EuroCham said that Vietnam should avoid adjusting tax policies regularly, because this will badly affect the stability of the automobile industry

To date, automobile manufacturers have only had information about the import tariff roadmap until 2014, while there has been no information for the 2015-2018 period.