New war in Vietnam luxury car market

Truong Hai's "extreme" pricing policy is predicted to make BMW a real threat to Audi, Lexus and Mercedes.

On November 30, 2016, the Ministry of Finance requested to stop customs clearance of BMW cars imported by Euro Auto due to violations in records and documents. The fate of the German luxury car company was speculated and dissected by experts.

Which company will be the new partner of the German car company in Vietnam?

On September 11, after nearly a year, BMW had its answer. Never before had the issue of "which company has the right to distribute" a luxury car brand been so noisy. Because luxury cars are far away from the majority.

But this time is different.

Customers are waiting for changes. Will there be another price revolution like Truong Hai created in the popular segment? The eagerness of customers is an obvious warning that luxury car manufacturers in Vietnam must prepare scenarios to face.

Mercedes now surpasses BMW

Mercedes dominates the market thanks to small assembled cars like the GLC.

The Vietnamese luxury car market is represented by almost all the big names in the world, mainly from Europe. Mercedes dominates with nearly 4,500 cars sold in 2016, the best-selling models are all assembled, the rest are imported. By the end of the first quarter of 2017, the three-pointed star brand's market share reached 70%. The remaining 30% is divided among the brands.

Direct competitors with sales potential are BMW, Lexus and Audi, all three are pure imports and sales are still far from catching up with Mercedes. The specific number of cars sold is not announced, but the best-selling brand is less than 50% of Mercedes. The main reason, besides the popularity of the product itself, is because the price of assembled Mercedes cars is cheaper than imported competitors.

When Truong Hai distributes BMW, either by import or assembly, there is the potential to reduce product prices, threatening the throne of Mercedes.

In the near future 2018-2019 Truong Hai will not be able to assemble BMWs immediately when all resources are focused on the second Mazda factory in Chu Lai, which will start production from April 2018 for export purposes. But in the more distant future, BMWs coming out of Mr. Tran Ba ​​Duong's factory are "open doors".

When Truong Hai imported BMW

Taxes, fees, transportation... of BMW cars from Germany to Vietnam will not be different from Audi, Porsche or some Mercedes cars. If the cost of importing from Germany is equal, the profit margin is equivalent, then the selling price of BMW will not be cheaper than its competitors.

Upcoming BMW events will be organized by Truong Hai.

However, Truong Hai has a clear advantage over Audi, Porsche or even Mercedes Vietnam distributors in terms of distribution network. In addition to the system of showrooms taken over by Euro Auto, Mr. Duong's company also has hundreds of Kia, Mazda or Peugeot dealers. When necessary, it is not impossible to utilize or expand this system to serve BMW.

The cost of sales will therefore be cheaper than competitors. Not to mention, Truong Hai can also reduce prices from small activities such as domestic transportation by using its fleet of trucks and tractors to carry cars, without having to rent additional warehouse space.

Even if it cannot reduce prices through sales activities, this "big guy" can still reduce prices through financial tools. Truong Hai accepts selling BMW at low profit, break-even or even loss in exchange for coverage and market share in the short term.

The director of a luxury car company in Vietnam commented that if they compete with each other based on financial potential and price, even if they have to sell imported cars, Truong Hai's BMW will not have difficulty creating an advantage.

When Truong Hai assembles BMW

"Assembled BMW cars will be a real threat to competitors," he said.

Mr. Duong's goal has always been to assemble cars, to expand the scale of the corporation as well as create a real automobile industry. For this reason, Mazda and Kia were the two names he chose for joint ventures from the beginning, because the two brands did not have large factories in the region, were not competitive and had an export future. "BMW will not be an exception."

BMW is likely to be assembled in the future.

To ensure financial resources and not "go bankrupt" by assembling many car models at the same time, Truong Hai will likely wait a few years to be able to assemble BMW, when the Mazda export target gradually operates smoothly, bringing in large profit margins.

The large land fund in Chu Lai Economic Zone, which already has Mazda, Kia factories and trucks and buses operating at high capacity, is a solid foundation for Truong Hai to open a BMW assembly plant. After effectively assembling CKD (importing all components for assembly), it will gradually move towards IKD (both importing components and using localized components).

With the current tax proposals, exempting special consumption tax on the domestically created value of each vehicle or reducing component tax to 0% if the output is high as prescribed, Truong Hai has more opportunities to further reduce vehicle prices. However, the proposal applies for 5 years 2018-2022, this will be a limited time for the company to turn its calculations into reality.

Mercedes will also receive these incentives for models assembled in Vietnam, but other aspects of scale and distribution system may not be equal. Assembling three brands with an output of up to hundreds of thousands of vehicles is also the basis for Truong Hai to receive other incentives earlier and more extensively than its competitors.

Besides, to create a good price policy, the Mercedes Vietnam joint venture faces difficulties when it is dominated by the parent company Mercedes in Germany, while the model of BMW with Truong Hai is to sell cars to make a profit from the cost price. How to set prices in Vietnam, how to make a profit or loss is the private business of the domestic partner, of course with terms to protect brand value.

The appearance of Truong Hai and BMW in the luxury car segment promises to bring a new breeze. Vietnamese car companies need the harmony of resources, market and new policies to create a revolution like what they did in popular cars. At that time, Mercedes, Audi or Lexus will find it difficult to sit still. The war of sellers will bring benefits to customers, when the gap to the luxury car segment gradually narrows.

According to VNE