Socialist Republic of Vietnam

by Phi Hung

Viet Nam’s 11 foreign-backed auto makers achieved a record 66 per cent sales growth in the first 11 months of the year, as customers rushed to snap up cars ahead of next year’s tax hikes.

The companies, also known as the Viet Nam Auto Makers Association (VAMA), reported nearly 35,000 sales in the January-November period.

But many dealers said they are now out of stock, creating a fever in one of the smallest car markets in the region.

"This is an historic moment for the car market, " a sales manager from Ha Noi’s Toyota TC said. "We had no cars to sell for a month despite an average 3.3 per cent price increase."

He said, with the price increase next year, 2003’s growth can only be achieved again in at least four years.

A car salesman at Ford Thang Long, also in Ha Noi, said there were absolutely no more cars in stock. If a customer wanted a car, he or she would have to accept one already on order whose deposit had not been paid.

VAMA also attributed the sales boom to the introduction of new models on the market, and the always profitable year-end season.

Market watchers said the increased sales could also be partly attributed to new regulations limiting individuals to only one motorbike. Many people felt they had no choice but to buy a car.

Tax hike looms

Meanwhile, the birth of thousands of new businesses, thanks to an easier registration process and an improved environment, also led to a new class of car owners.

As Viet Nam’s auto manufacturers are soaking in the joy of 2003, they are bracing themselves for a miserable 2004 when they will have to plan further price increases to counter impending tax hikes.

VAMA believes sales will plunge 30-40 per cent next year after the special consumption tax (SCT) rises to 24 from 5 per cent on cars with five seats or less, with similar increases for larger vehicles.

The SCT increase comes into effect on January 1, and is scheduled to continue annually until 2007, at which point cars will be taxed 80 per cent and other vehicles from 25 to 50 per cent.

To compound the industry’s woes, the value added tax (VAT) on auto component imports will also double to 10 per cent.

Consumers, meanwhile, will face higher VAT charges on vehicle purchases.

The tax increases come after a September 1 tax hike which pushed import duties on auto components for vehicles with 15 seats or less from 5 to 25 per cent. Larger vehicles incurred a larger hike.

Many VAMA members, including market leader Toyota, reacted by increasing prices from 1 to 4 per cent. Most say they will have to do so again in January, but this time by as much as 25 per cent.

They say this could have a disastrous impact on the country’s fledgling auto industry.

"It will have a huge impact on the industry," VAMA chairman Makoto Sasagawa said. "The tax hike pushes up the retail sales price, resulting in a shrinking market and little future for the Government’s strategy to increase the use of local parts, which it says is the goal of the new tax scheme."

However, the Government hopes the tariff, SCT, and VAT increases will encourage foreign-backed auto manufacturers to use domestically-made parts.

"Car makers should understand the tariff hike is not intended to increase our budget revenues, but to promote investment in ancillary industries," said Deputy Minister of Finance Truong Chi Trung.

Trung said the tariff regime also conformed with the Government’s long-range Automobile Industry Development Strategy.

Meanwhile, delegations from the world’s leading car manufacturing countries came to Ha Noi in the past few months to petition the Government to rethink its tax plan.

America’s "big three" auto makers - DaimlerChrysler, Ford Motor and General Motors - visited last October. Japan’s Kansai Economic Federation (Kankeiren) came this month.

"We have proposed the Viet Nam Government review its tax policy on automobile and motorbike industries in order to encourage Japanese investment," Joshihisa Akiyama, president of Kankeiren, which comprises 800 Japanese companies, said.

Among the country’s 11 auto makers, seven are Japanese-owned. Car ownership is still not terribly widespread in Viet Nam. There are only around 530,000 cars on the road, a small fraction of the nearly 10 million motorcycles. — VNS