Higher taxes and fees put automobile manufacturers in distress

Foreign invested automobile enterprises have complained that they are now in big difficulties with rising inventories, financial instability and stagnant production.

Sales downtrend forces manufacturers halt production

Deputy General Director of Ford Vietnam, Hoang Van Minh, has said that the demand has plunged in the last few months after the market continuously received bad news about the vehicle ownership registration tax, car plate number fee, road maintenance fee and vehicle circulation fee.

The sales of Ford and other members of the Vietnam Automobile Manufacturers’ Association (VAMA) have dropped by 50 percent in comparison with late 2011. Ford Vietnam’s workers stayed off work for two weeks in February.

General Director of Toyota Vietnam, Akito Tachibana, has also said that the sales of cars in January and February decreased by 44 percent in comparison with the same period of 2011, after the car ownership registration tax and car plate number granting fee rose sharply in big cities since January 1, 2012.

According to VAMA, the association’s members churned out 10,000 vehicles a month on average. The inventories have increased since the beginning of 2012 due to the weak demand. The manufacturers sold less than 4000 cars in January and 6000 in February.

Ford Vietnam churned out 550 cars in the first two months of the year, but only 392 cars have been sold. Fiesta, one of the best sellers with 2000 cars sold by the end of 2011, has become unsalable.

GM Vietnam is facing the same situation. In the past, it put out 1000 vehicles a month and sold out the volume, while it churned out only 1500 cars in the first two months of the year, but sold 1094 cars only.

Mercedes Benz Vietnam reportedly churned out 395 cars in the first two months of the year, but only 202 cars were sold.

Imports have also been left unsold. A salesman of a Hyundai’s sales agent on Pham Hung road in Hanoi, said that less than 30 cars have been sold since Tet, while officers have not got pay over the last three months.

Re-considering production plan

Automobile manufacturers have complained that the government of Vietnam is trying to restrict private vehicles, while it does not care about how automobile manufacturers can be influenced by the new policies.

The higher taxes and fees will make it more costly to possess a car. If someone spends 1 billion dong to buy a car, he would have to spend 10 million dong every month to “feed” it, or 120 million dong a year. In the near future, when car owners have to pay the vehicle circulation fee, the total cost would be 150 million dong a year.

Analysts said that if depositing the 1 billion dong at banks, he would get the profit of 130 million dong a year. As such, if he spends 1 billion dong to buy a car instead of depositing at bank, he would lose approximately 300 million dong a year. Meanwhile, he can use the 300 million dong to travel on taxi or leasing cars.

Akito Tachibana from Toyota Vietnam has said that with the current policy on restricting car consumption, automobile manufacturers would face big difficulties in 2012, which would force them to adjust the production plan.

Some foreign invested automobile manufacturers have said they may scale down production and lay off workers. Currently, the 18 member companies of VAMA create 60,000 jobs.

In 2008, when the world economic recession occurred, the automobile manufacturers also had to cut down the workforce, even though the government of Vietnam then offered big support, including the 50 percent VAT and car ownership registration tax reductions. Meanwhile, the current conditions are believed to be more severe than in 2008.