Vietnam - Sales: Automobile purchasing power down in May

Vietnam - Policy: Vietnam's auto import surges despite higher tariffs

Vietnam's auto import increased although the country raised tax on imported new passenger automobiles to 83 percent from previous 70 percent on April 22 in a move to narrow trade
deficit, curb inflation and relieve traffic congestion.

The country also hiked tariffs on automobile components and parts by 3-5 percentage points
at the same time.

According to the country's General Statistics Office recently , Vietnam imported 35,400 completely
-built automobiles, mainly cars, valued at 625 million U.S. dollars in the first five months of this
year, compared 5,000 units of automobiles and cars at a value of 109 million dollars in the same period last year.

Vietnam also spent 681 million dollars importing automobile parts and components for assembly between January and May, up from204 million dollars in the same period last year.

The higher tariffs have lifted showroom prices of many kinds of domestically-assembled
automobiles by around 300 dollars per vehicle.

"In April, we raised the price of our Camry 2.4 to 51,100 dollars from 50,600 dollars," said
Nguyen Nhu Y, a saleswoman of Toyota Hoan Kiem, the biggest agent of Toyota Vietnam.

At the Toyota Hoan Kiem's office in the capital city of Hanoi, a local construction engineer
named Nguyen Huy Duc was checking out a blue navy car branded Vios G. "It sells for 29,200
dollars now. Its price early last month was 28,900 dollars. The change isn't too much, so I'll buy
it," the middle-aged man said.

"Though the import tax was hiked recently, the number of customers coming here has remained almost unchanged. However, it might change if luxury taxes increase," the young saleswoman
said, noting that Toyota Vietnam recorded sales of 20,113 vehicles in 2007, posting year-on-
year surge of 160 percent, and a domestic market share of 25 percent.

Vietnam's Finance Ministry plans to increase luxury taxes on automobiles in the coming time.

Now, automobiles with fewer than five seats are subject to the luxury tax rate of 50 percent,
6-15 seats 30 percent, and 16-24 seats 15 percent.

Vietnam - Government: Auto industry makes Hay

The 10-year-old automobile industry is essentially assembling cars using imported components
despite a friendly tax regime being in place, delegates heard at a conference recently.

“Car production is almost non-existent,” Phan Dang Tuat, director of the Industrial Policy and
Strategy Study Institute, a government think tank, told the conference held at the ongoing
Vietnam AutoExpo exhibition in Hanoi.

Manufacturers mostly rely on low taxes to import components and parts, especially complete
knock down kits, to assemble vehicles, he said.

The low tariffs on component imports have been part of the government’s decade-long protection policy, which also includes high taxes on imported cars.

In return, automakers are required to increase local content by 5 percent every year.

But Nguyen Van Phung, vice director of the Finance Ministry’s Tax Policy Office, said local content
only ranges from 5 to 10 percent now.

The industry is still stuck at an early stage of development with the country having to “import
most trucks, buses and special-purpose vehicles,” he said.

It cannot meet the increasing demand caused in recent years by more people moving up from motorbikes.

Customers often have to wait for months for their car to be delivered though prices are still
among the world’s highest.

Locally-made cars of the same brand are 20 – 80 percent more expensive than in neighboring countries, Tuat said.

Yet the quality is not comparable, he said.

“If we drive a made-in-Vietnam Toyota car, we can feel [the quality is] much worse than a
Toyota made in Japan, Thailand or America.”

Therefore, dealers say, many people prefer to buy imported cars, which are only slightly more expensive than locally-assembled vehicles.

Most carmakers blame the small market and the dearth of components manufacture for their
high costs.

Some industry insiders told the conference that, on the contrary, high prices are restricting
the growth of the market and crippling development of the parts manufacturing industry.

Vietnam has around 30 parts makers while it would take thousands of them to meet the demand
of a healthy auto industry, Tuat said.

“[Component makers] mostly produce simple parts such as inner tubes,” he said.

“Even batteries and tires are being imported.” The industry people also urged local
manufacturers to consider participating in global value chains.

Lifting protection

The government should stop protecting the auto industry to ensure its healthy development
and fulfill its World Trade Organization commitments, some economists suggested at the
conference.

After joining the global trade body, Vietnam cut car import tax to 60 percent from 90 percent
from January-November 2007.

Local manufacturers’ sales dropped significantly and consumers looked forward hopefully to
a mass price cut.

But to contain a soaring trade deficit this year the Finance Ministry has raised the car import
tariff sky high – it now stands at 93 percent.

Local manufacturers have benefited, selling 18,200 units last month compared to 8,900 in
February.

A Finance Ministry delegate told the conference the country would adhere to its commitment
to cut car import taxes to an average of 47 percent by 2017.

The ministry would eliminate preferential tax for complete knock down vehicles, he said.

Vietnam - Government: Wheel turns against the auto sector

The duty on brand new cars dropped three times last year to 30 per cent from 60 per cent,
and then rose again to 83 per cent in early April. Meanwhile, the duty on automotive spare
parts increased by 3-5 per cent to 33-35 per cent.

Nguyen Van Phung, deputy head of the Ministry of Finance’s Taxation Policies Department,
said vulnerable infrastructure and traffic congestion in urban cities like Hanoi and Ho Chi Minh
City were the main causes behind the tax hikes.

Under the ASEAN Free Trade Agreement (AFTA) commitments, Vietnam will have to loosen tariff barriers with duties having to be reduced to five per cent by 2012. Gan Kok Seng, deputy
general director of Honda Vietnam Company said that any increase in tax “will affect all companies
in the industry.”

“For long-term development, adjustment of tax is an inevitable process,” he said, adding that
the adjustment should be moderate and beneficial to the development of the local industry.
After the first four months this year, total sales of locally-assembled cars came in at 47,366
units, an increase of 181 per cent against that of the same period last year.

Besides, over 28,000 cars were imported in the first four months this year, an increase of 7.5
times against the same period last year.

However, the latest figures released by the Vietnam Automobile Manufacturers’ Association
indicated that in May, total locally -assembled cars sales amounted to 11,494 units, nearly
2,000 units lower than the previous month.

Whilst customs statistics also showed that around 5,000 CKD units were imported in May,
over 2,000 units lower than the previous month.

Pham Huu Tam, director of the Ho Chi Minh Trade Company, said that import enterprises were
forced to increase prices on imported used cars as a result of rising duties.

Local automobile producers also face concerns with the rising duty of automotive spare parts
plus proposed taxes.

“Government policy affects the speed of development of all industries, including automobiles,”
Seng said, adding that policy should be beneficial to all stakeholders.

In a related move, the MoF has recently released the draft special consumption tax (SCT)
which will see an increase of 30 per cent to 60 per cent on both imported and locally assembled
cars on average.

Also, the MoF has submitted a government proposal on increasing ownership fees from 5 per
cent to 15 per cent of retail prices in Hanoi and Ho Chi Minh City, and up to 5 per cent from 2
per cent in other provinces and cities.

Both the proposed SCT and fees may be applicable to imported and locally-assembled cars by
the end of this year.

With increasing tax of various kinds, experts estimated that the price of both imported cars
and locally-assembled cars would increase by at least 30 per cent.

Kim Jung In, general director of the GM Daewoo Vietnam, also said that the Vietnam Automobile Manufacturers’ Association had requested related government agencies to reconsider potential negative impacts to the economy.

“The SCT and ownership fees increase will ruin all of us and completely knock down car assemblers’ efforts,” he said.