Billions of dollars poured into imported cars.

For 17 consecutive months, car sales by members of the Vietnam Automobile Manufacturers Association (VAMA) have surged, with each month surpassing the previous one.

Locally produced cars are more expensive than similar cars manufactured in other ASEAN countries. (Pictured: City model manufactured by Honda Vietnam)

While the growth in sales of vehicles manufactured and assembled by VAMA members was only slightly over 20% per month, imported cars saw an increase of over 60%, and in some months even over 75%.

VAMA has not yet released statistics from its members for September 2014, but surveys from members show that car sales continued to increase compared to August 2014. The prospect of Vietnamese automobile businesses expanding investment to develop domestic production and assembly is unlikely to materialize when import taxes on automobiles are reduced to 0% in 2018.

Imported cars are growing 2-3 times faster than domestically produced cars.

According to the General Statistics Office, the total import value of automobiles for the first nine months of 2014 is estimated at 44,000 units and 938 million USD, an increase of 74% in volume and 90.2% in value compared to the same period last year.

According to the free trade area's commitment roadmap, in 2014, the import tax rate for passenger cars with fewer than 24 seats into Vietnam was reduced to 50% (provided there is a 40% localization rate in the ASEAN country where the vehicle is manufactured). The import tax on pickup trucks from ASEAN countries, currently at 5%, will be reduced to 0-5% in 2016-2017 and to 0% in 2018.

In the sales figures of VAMA members, a significant proportion of imported car models have shown continuous growth recently. VAMA statistics show that as of the end of August 2014, sales of domestically assembled cars increased by 27%, while sales of imported cars increased by 66% compared to the same period last year.

This ratio consistently maintained a much larger gap over several months. For example, in July 2014, the ratios were 24% and 62%, in June 2014 they were 24% and 60%, and notably in May 2014, the number of domestically produced vehicles increased by only 23% while imported vehicles increased by 75%.

The monthly sales figures of VAMA members all include models imported directly from ASEAN countries due to preferential import tax rates; in particular, models with 40% or more components originating from ASEAN countries are subject to a 50% import tax.

For example, Ford Vietnam sold 394 vehicles imported from Thailand out of a total of 1,287 vehicles sold in August 2014, while Toyota Vietnam sold 423 vehicles imported from Thailand out of a total of 3,615 vehicles sold. Specifically, the pickup trucks sold by VAMA member companies are entirely imported from Thailand due to the import tax being only 5%.

According to statistics from the General Department of Customs, in the first eight months of 2014, the number of vehicles imported from Thailand reached over 7,400, an increase of 64.3%, while India imported 5,800 vehicles, compared to only 745 in the same period last year...

Some Vietnamese car manufacturers acknowledge that imported complete cars from the ASEAN region are concentrated mainly in Thailand and Indonesia. The main reason is that these two countries have rapidly developing automotive industries, with monthly sales volumes that can equal or exceed the entire Vietnamese automotive market's annual sales, and a very strong system of investors and manufacturers of automotive parts and components.

Is importing more advantageous?

Speaking to Tuổi Trẻ newspaper, Mr. Kazuhiro Yamana, General Director of Vinastar Company, said that of the four car models that the company is distributing to the Vietnamese market, only one model is imported as CKD components for assembly at the factory in Binh Duong, while the rest are imported as complete units from Thailand and Japan.

The two car models that the company plans to introduce to the Vietnamese market in 2014, the Attrage and Outlander Sport, will also be imported from Thailand and Japan, respectively, because manufacturing in Vietnam would not be as profitable as importing.

"We have planned to introduce new car models to the Vietnamese market, but we will closely monitor market developments to adjust our business strategy accordingly, whether to increase production or import," Mr. Yamana said when discussing the possibility of import taxes on automobiles being reduced to 0% in 2018.

Cars manufactured in Vietnam are much more expensive than similar models produced in Thailand due to low production volume and the fact that most components have to be imported. Therefore, according to Mr. Tomohiro Maruno, Director of Automotive Sales at Honda Vietnam, instead of manufacturing, businesses should import and sell them.

Given this situation, according to Mr. Tomohiro Maruno, if Vietnam wants its automobile manufacturers to maintain production, it needs a specific program to support domestic automakers, because "businesses alone cannot solve the price difference between Vietnam and other ASEAN countries."

Mr. Tomohiro Maruno also stated that Vietnamese automobile manufacturers are working diligently with relevant parties of the Vietnamese Government to concretize the action plan outlined in the Vietnamese automobile industry development strategy, which is expected to be officially announced in November 2014.

"If we don't act quickly before the third quarter of 2014, we won't have enough time. By then, no businesses will have the opportunity to increase investment and production; they'll just have to import cars from major ASEAN countries like Thailand and Indonesia to sell." According to Mr. Maruno, the method for calculating the localization rate in the automotive industry development strategy has yet to be announced, and there is no concrete plan to scientifically calculate this rate.

VnEconomy