Warning from Vietnam auto market 2018

The prospect that the Vietnamese market will be flooded with cars originating from Thailand or Indonesia is very clear.

In the current Vietnamese automobile market, cars with the brands Toyota, Ford or Honda... are dominating the market share. Most of these car companies have at least one manufacturing plant located in Thailand or Indonesia, or both.

Right now, the roadmap for tariff reductions according to international commitments has begun to show an increasingly clear picture of the Vietnamese automobile market, with 2018 as the starting point. First of all, it is necessary to affirm a principle that the issued taxes do not create technical barriers that separate luxury cars from other types of cars. The distinction is often based only on criteria of engine cylinder capacity or emission standards for the purpose of protecting the environment.

Luxury cars are inferior:

So why are luxury cars facing difficulties? The answer lies in the origin factor. According to the tariff reduction roadmap under the ASEAN Trade in Goods Agreement (ATIGA), from 2018, the import tax rate on completely built-up (CBU) cars from Southeast Asian countries will be reduced to 0%.

The tax reduction roadmap will be implemented in stages to better suit reality and also to "anti-shock" businesses and consumers. The problem is that, at present and even in the next decade, no luxury car company will open a large enough factory in ASEAN countries to serve export purposes.

Most luxury brands such as Audi, Mercedes-Benz, Porsche, BMW, Lexus, Cadillac... are all produced in their home countries such as Germany, the US or Japan... If anything, the factory scale is only on par with the factory that Mercedes-Benz is located in Vietnam. Therefore, the faster the ATIGA tax reduction takes place, the cheaper the prices of imported cars from this region will be. Meanwhile, luxury cars are all imported from countries outside the ASEAN region, so the selling price will continue to be sky-high in the long term due to high import taxes.

Note that the import tax plus the CIF price or taxable price determined by the customs sector will be the base amount for a series of other taxes and fees such as special consumption tax, VAT or registration fee to multiply.

Another point to note is that there will be no such thing as luxury cars going around to enjoy tax incentives. In the preferential tax schedules developed and issued by the financial sector, it is always clearly stipulated that goods must be imported directly from that country. For example, it is impossible for traders to bring a batch of Audi cars from China through Southeast Asia and then import them to Vietnam to enjoy tax incentives.

Popular car advantages:

Meanwhile, most popular cars have a huge advantage in price due to tax reduction. In fact, the prospect of the Vietnamese auto market being flooded with cars originating from Southeast Asia since 2018 has been mentioned many times by the media. In the current Vietnamese auto market, cars with the brands Toyota, Ford or Honda... are dominating the market share. Most of these car manufacturers have at least one factory located in Thailand or Indonesia, or both. All of these factories are larger in scale and even many times larger than the factories that the group has located in Vietnam.

In the past two years, major auto corporations have also shown a clear trend of concentrating production in Thailand and Indonesia, from which they export to Southeast Asian markets in particular, Asia-Pacific and Africa in general. Typically, Toyota and Ford have recently decided to build additional factories in Thailand and Indonesia with an investment capital of 200 to 400 million USD per factory, equal to the total capital that these companies have invested in Vietnam for nearly 20 years. Most recently, Nissan has also inaugurated a new factory with an investment capital of more than 110 million USD in Thailand.

A few years ago, when import tariffs from ASEAN entered the reduction roadmap, automobile joint ventures in Vietnam began to narrow down their portfolio of locally assembled products (CKD) to compensate with completely imported models from Thailand and Indonesia. At this time, there are at least 10 models being imported by distributors in Vietnam from the two countries in the region.

In the context of increasingly heavy integration pressure, automobile manufacturing and assembling enterprises in Vietnam must, on the one hand, propose and advise government agencies to have strong enough mechanisms and policies to create momentum for the domestic automobile industry. On the other hand, they still have to "protect themselves" by gradually "reserving" in advance for the CBU car market.

Reality also shows this trend very clearly. Although according to the special preferential import tax schedule of ATIGA for the period of 2012-2014, the import tax rate of completely built-up cars from ASEAN countries has decreased quite slowly, from 70% in 2012 to 50% in 2014 for passenger cars with less than 10 seats, the import turnover from this region has continuously increased.

According to statistics from the General Department of Customs (Ministry of Finance), the total number of CBU cars imported from ASEAN in the first 5 months of 2014 reached 4,282 units with a turnover value of 65.37 million USD, an increase of 1,104 units in quantity and 11.92 million USD in value compared to the same period in 2013. Of which, the import turnover from neighboring Thailand reached 3,575 units and 58.49 million USD, an increase of 899 units in quantity and 9.45 million USD; the import turnover from Indonesia reached 707 units and 6.86 million USD, an increase of 205 units in quantity and 2.46 million USD in value.

With such a strong growth rate, the prospect of the Vietnamese market being flooded with cars originating from Thailand or Indonesia is very clear. And this is a strong warning for the hesitation and weakness of the domestic automobile industry./.

According to vov