Discounts, a double-edged sword in the Vietnamese auto market

Never before has the Vietnamese auto market been in such a chaotic situation with retail price reductions like in 2017.

There are many different reasons for the price race and many sometimes contradictory results are produced.

Thaco boost

If the question is who started the price reduction race in the Vietnamese auto market, the most convincing answer is Truong Hai (Thaco), the domestic car company that manages two passenger car brands Mazda and Kia.

Immediately after the cooperation in production and distribution with the Japanese automobile corporation, Thaco set the goal of developing Mazda to become one of the major brands in the Vietnamese automobile market.

Joining later but having many "backyards" such as the success of the Kia brand, the support from the bus and truck segment, and even the revolving capital from the real estate sector, Thaco jumped into the price reduction game with Mazda two years ago, not waiting until 2017.

The psychology of waiting for car prices to decrease in 2018 has prevented car purchasing power in the whole market from recovering, even though car prices have continuously decreased.

The goal that Thaco affirmed is to boost Mazda's sales volume to 50,000 vehicles/year. To achieve this, Thaco will officially receive technology and equipment transfer from Mazda Japan to produce, dominate the domestic market and even larger, export back to Southeast Asia, a market of more than 600 million people with a 0% tax rate since January 1, 2018.

After strong price cuts in 2016, Mazda's sales volume has continued to grow with popular models such as the Mazda3, CX-5 and BT-50.

By the end of 2016, Thaco sold a total of 32,000 Mazda vehicles, putting the brand in the top 5 largest brands in the market.

However, the distance to the production milestone of 50,000 units/year is still very far. This situation pushes Thaco into a price reduction relay race.

Therefore, although at the beginning of this year, the head of Thaco's passenger car division affirmed that Mazda car prices had reached "bottom", as is known, Mazda car prices have continued to decrease up to the present time.

It is these seemingly endless waves of discounts, like never-ending ocean waves, that have pushed many other automakers into the price reduction game to compete for market share.

One by one, Honda, Mitsubishi, GM... or even the laziest car company to discount, Toyota, were forced to join the race.

It is a competitive price reduction and each decision to reduce prices with specific reduction rates is made by car companies after "looking at each other".

By the second half of 2017, the price reductions became more intense and escalated to a "price storm". The unprecedented "price storm" in the Vietnamese auto market arose from the pressure of consumers. The psychology of waiting for car prices to decrease in 2018 has prevented car purchasing power in the entire market from recovering despite the continuous price reductions.

In September and October, the retail prices of many types of cars even dropped sharply. Never before has the retail price of a popular car model in Vietnam been reduced by more than 200 million VND per unit.

And right now, when the market has more than a month left until the end of 2017, car prices still show no signs of stopping falling.

Not just sweet fruit

Each price reduction decision usually has a very good stimulating effect on each supplier. But with continuous price reductions, each round is deeper than the previous, sometimes the results are not as expected.

Mazda was very successful with its price reduction strategy in 2016. Not only did it make a meteoric rise into the largest brand group in the market with total sales of over 32,000 units, Mazda also created "trends" with the Mazda3 and CX-5.

However, it is also the consecutive price reductions that have been creating "side effects". Consumers will hesitate in each decision to buy a car when they cannot know whether, after buying the car, the price will continue to decrease or not.

With more than a month left until the end of 2017, car prices have shown no signs of stopping falling.

Many consumers have complained on auto forums that they felt like they lost their money when deciding to buy a car early.

Because one morning they wake up, read the news about car discounts, and realize they just "lost" hundreds of millions of dong in just one day.

On the other hand, old customers will have difficulty changing to newer generation cars. The reason is that they cannot sell their used cars when the price of new cars has dropped so low. This becomes more important in a car market where price retention is always a factor of concern for consumers.

That is probably also the convincing answer to the gloomy market situation even though the car price level has dropped very low. Along with the psychology of waiting for the price of imported ASEAN cars in 2018, consumers themselves still want to wait and see how much the car price will decrease.

Mazda itself, after a period of strong growth, has also begun to slow down. According to statistics from the Vietnam Automobile Manufacturers Association (VAMA), by the end of October 2017, total sales of new Mazda vehicles reached just over 20,000 units, 5,000 units lower than the same period last year.

Notably, this output level has been pushed far below the target of 50,000 vehicles/year that Thaco is trying to achieve.

Partly "blaming" the tax reduction roadmap under the ASEAN Trade in Goods Agreement (ATIGA) is also partly "blaming" the car manufacturers themselves. It is the eagerness of car manufacturers in the goal of stimulating demand that has led to endless price cuts, thereby leading to the psychology of waiting with no end in sight for consumers.

According to VnEconomy