Auto manufacturers threatening to cut down production ‘cause of higher tax

Responding to the Hanoi and HCM City authorities’ decision to raise the car ownership registration tax, commencing from January 1, 2012, automobile joint ventures have commented that the Vietnamese policies abandon manufacturers.

Tachibana, General Director of Toyota Motor Vietnam, who is also Chair of the Vietnam Automobile Manufacturers’ Association (VAMA), said that the car ownership registration tax increases to 20 percent in Hanoi and to 15 percent in HCM City, plus the car plate granting fee will surely have negative impacts on the domestic automobile market which has been relying on the two Hanoi and HCM Cities.

“Higher tax will mean lower demand and lower sales,” he said, adding that Toyota Vietnam would have to reconsider the production plan for the next year 2012. Especially, Toyota Vietnam’s production plans until 2018, when the ASEAN’s AFTA takes effect would face a lot of difficulties.

Mr Tachibana said that automobile manufacturers in Vietnam hope the government of Vietnam will have a long term strategy to develop the automobile industry and supporting industries. The manufacturers have been supporting the government’s idea to build up a strategic car line. However, this can be obtained only when the government applies stable taxation policies, the market can be pushed up and concentrated.

Not only Toyota Vietnam, other automobile manufacturers have also said they would have to reconsider the production plans for the next years.

Policies ignore manufacturers’ interests?

Nguyen Minh Dong, a Viet Kieu (overseas Vietnamese), a car designer, who once worked for Volkswagens in Germany, thinks that it is a blunder to restrict private car consumption, saying that in order to develop the automobile industry, it is necessary to encourage car consumption.

Other countries in the world only apply the policies to restrict the circulation of cars in big cities and crowded residential quarters, while they do not strive to restrict car consumption. It is clear that when the measures to restrict consumption are applied in Hanoi and HCM City which consume 70 percent of the total car output, the automobile industry would suffer.

The White Book published by EuroCham in Vietnam has also mentioned the policies relating to the Vietnamese automobile industry. EuroCham believes that the regular changes of tax policies will badly affect the stability of the automobile industry. It said that the changeable policies have been interrupting production lines, supply chains and retail activities involved in the automobile industry, creating artificial demands on the market.

One month ago, the automobile market was gloomy with very low demand. However, it has become burning right after the Hanoi and HCM City local authorities announced the tax and fee increases. As a result, car part suppliers and car assemblers cannot meet the high demand. Meanwhile, the high output in the future would lead to the abundance. As such, both abundance and deficiency can influence the production stability and discourage manufacturers.

Manufacturers would leave?

Mr Tachibana has forecast that by 2018, only three auto foreign invested enterprises would exist in Vietnam. Analysts have also imagined that once the car tariffs reduce to 0-5 percent as per the commitments in the ASEAN/AFTA, car imports under the mode of complete built units CBU would flock into Vietnam. By that time, domestic manufacturers would not be able to compete with the imports, and they would have to leave Vietnam, or become the sales agents which distribute import cars and provide post sale services.

Vietnam is located in South East Asia region, which is considered the last potential car market of the world. With the total population of 600 million, local residents in South East Asia estimate they would consume 10 million cars per annum in the time to come. All South East Asian countries have joined AFTA and WTO. Therefore, automobile manufacturers just need to set up production bases in one country to be able to sell cars in the whole region.

Leading automobile manufacturers have flocking to South East Asia. However, they have not come to Vietnam. They have set foot in Thailand, which has turned into a big automobile industry center, and in Indonesia in the future.

According to the Ministry of Industry and Trade, Vietnam would have 166,000-235,000 new cars to join the market, while the figure would be 246,000-347,000 cars by 2020.