In 2018, Vietnamese people had the opportunity to buy luxury cars.

As 2017 drew to a close, companies barely had time to breathe a sigh of relief from declining sales before pressures from policy changes emerged. Industry experts predict growth in 2018, but the specific figures are subject to various scenarios, depending on government policies.

A member of VAMA revealed that the association has predicted the most optimistic figure is a 40% increase compared to last year, if imported cars can return to normal soon. Conversely, if imported cars cannot arrive soon, and have to wait until mid-year, or even not arrive at all, the market will increase by about 5%. To choose an average, this person believes that around 10-15% is reasonable.

The impact of policies on the market in 2017 has made VAMA much more cautious in planning for 2018. While the focus of the manufacturers' battle in 2017 was on winning over customers' hearts and minds, things are more complex in 2018, across all segments.

The mass-market car market is a life-or-death battle between importing and assembling vehicles, as Decree 116 remains unchanged. The luxury car market is booming, especially with BMW now under Truong Hai's ownership and priced hundreds of millions lower than during the Euro Auto era. Another segment expected to grow next year, but facing significant challenges, is approaching the luxury segment, currently dominated by Volkswagen and Peugeot.

Mainstream cars: the advantage lies with local assembly.

A few years before 2018, domestic assembly companies worried they couldn't compete with imported cars when import taxes from ASEAN countries dropped to zero. But by the end of 2017, government policy interventions had turned the tables. The government's policy of orienting the automotive industry towards domestic assembly provided numerous incentives for domestic companies, while Decree 116 created difficulties for imported cars.

At this point, most joint venture companies importing mainstream vehicles from ASEAN are facing delays, unsure when they will be able to import. Companies are preparing to obtain type approval certificates, but even with these, it will still take another 4-5 months before they can import vehicles. Honda, Toyota, and Ford are all waiting because they are still pursuing a strategy of primarily importing vehicles. The CR-V, Fortuner, and Ranger are all out of stock, making it impossible for customers to purchase them or forcing them to opt for domestic assembly.

In contrast to Truong Hai, Thanh Cong is taking advantage of preferential treatment to expand its factories and develop assembly operations as much and as quickly as possible. Without the counterweight of imports, domestically assembled vehicles can set their own market prices, lead the game, and even dominate customers.

Thanh Cong and Truong Hai are beginning to benefit from Decree 125, which exempts import taxes on components. But that seems insufficient for these major players. Mr. Le Ngoc Duc, General Director of Hyundai Thanh Cong, believes that more incentives are needed for domestically assembled vehicles, such as exemption from special consumption tax on the domestically produced value, because incentives limited to Decree 125 are "half-hearted." This CEO is also confident that these proposals will soon become a reality.

The confidence of the two assembly companies reflects the concerns of joint ventures that import vehicles. If they continue to import a few models, they will have to compete on factors other than price, as imported cars will find it difficult to lower prices like domestically assembled cars.

Luxury cars: an opportunity for Vietnamese customers to buy luxury vehicles.

Mercedes-Benz Vietnam expressed mixed feelings of concern and joy upon Truong Hai acquiring the distribution rights for BMW vehicles. The concern is easily identifiable: the potential for market share loss. Upon launch, Truong Hai's BMWs were priced tens to nearly 600 million VND cheaper than similar models previously distributed by Euro Auto. This price point directly threatened Mercedes' dominance in the Vietnamese luxury car market.

Truong Hai itself doesn't have high expectations for sales in the initial phase, despite the low price, because this is a time for customers to observe the reactions of others. If customer service is good, then the company can start selling cars.

Meanwhile, Mercedes is accepting a more intense market share split compared to the Euro Auto era. However, the company hopes that BMW's lower prices will expand the luxury car market, encouraging more customers from the mainstream segment to upgrade to premium vehicles. "When they intend to buy a luxury car, the opportunity is evenly distributed," a Mercedes Vietnam representative shared. The lost market share can be compensated by increased sales volume.

The luxury car market will become more vibrant, especially as Truong Hai plans to open 15 showrooms in 2018 or early 2019, matching Mercedes' network built over more than 20 years in Vietnam. Smaller competitors also have opportunities as the market expands, but they need to create better differentiation if they don't want to be overshadowed by the two major brands.

Lexus might have to import cars from Europe if Japan can't provide type approval certificates. Audi has its own customer base, who prefer fashion and generally don't overlap with BMW. Volvo, Maserati, and Porsche are even more unique. "The best way to compete is to do yourself well," said a representative from one company.

Approaching the luxury segment: what opportunities are there for those "ambiguous" names?

The near-luxury segment is for European imported cars, but not quite luxury like Mercedes or BMW; these are Volkswagen and Peugeot. Truong Hai has been bringing Peugeot to Vietnam for many years, but without much success. Annual sales only reach a few hundred cars.

Meanwhile, Volkswagen also experienced ups and downs in recent years, lacking a clear value, while its European import origin resulted in significantly higher prices compared to Japanese cars.

In 2018, both companies showed signs of restructuring to revitalize the market. Peugeot launched two models, the 3008 and the 5008 (an extended version of the 3008). The new, modern, and appealing designs, along with more advanced technology, initially led to promising sales figures. Orders in just two months exceeded those of the previous year. If sales continue to improve, Peugeot could become self-sustaining and avoid being merely a "for show" brand within Truong Hai's product portfolio.

Volkswagen is expanding both its product portfolio and business plan. In 2017, the company sold over 700 vehicles and hopes to increase that by approximately 40% in 2018 to over 1,000 vehicles. To achieve this goal, the company opened four dealerships at the beginning of the year and plans to expand further in the coming period.

Volkswagen and Peugeot's expansion efforts must be coupled with product differentiation to compete with Japanese cars. Volkswagen, for example, is a German car manufacturer with higher prices than Japanese cars, lower than luxury cars, and offers superior performance and driving feel compared to Japanese cars, even comparable to luxury cars in the lower segment.

However, even the best-performing car model will likely not win over Vietnamese customers, who generally value convenience, if it lacks a USB port (while having a CD player that reads up to 6 discs).

Whether the Vietnamese market will grow by 5%, or even up to 40% as envisioned by VAMA, largely depends on policy stability and the financial capacity to set low prices in a highly price-sensitive competition.