Why are domestically assembled cars competing to 'drop' in price?

The fact that car manufacturers in Vietnam have continuously "shockingly" reduced prices for domestically assembled cars in recent times is all intentional.

After announcing a discount of hundreds of millions of dong for the Honda CR-V, within just a few days, Honda car dealers received a large number of orders and had almost no cars left to sell.

Accordingly, after a price reduction of nearly 170 million VND in early August, the Honda CR-V SUV line continued to be adjusted down sharply again in early September. Thus, within just 1 month, the high-end CR-V 2.4 AT TG version was reduced by 280 million VND, the CR-V 2.4 AT version was reduced by 330 million VND and the CR-V 2.0 AT version was reduced by 220 million VND.

Honda CR-V has "shocked" the market by continuously reducing its price by several hundred million within the past month.

Previously, Truong Hai also announced a price reduction for the Mazda CX-5 to below 800 million VND, a reduction of about 200 million VND/car compared to a few months ago.

Continuing, other car manufacturers such as Nissan, Toyota, Chevrolet... also announced discounts from several tens to nearly 100 million VND for many domestically assembled car models.

It is not by chance that car manufacturers simultaneously announced deep discounts on some domestically assembled car models, causing “shock” to consumers. According to some dealers, this move is on the one hand to “push” inventory, on the other hand to increase sales and on the other hand to “clear the way” for the new imported car models of the same version that are about to arrive.

According to the report of the Vietnam Automobile Manufacturers Association (VAMA), car consumption in recent months has continuously decreased sharply and reached a lower rate than the same period in 2016. Accordingly, total sales of the entire market up to the end of June 2017 decreased by 6% compared to the same period last year; in which passenger cars decreased by 2%, commercial vehicles decreased by 10% and specialized vehicles decreased by 18%.

In addition, the consumption of domestically assembled cars is decreasing sharply due to the "pressure" of information that the special consumption tax on imported cars from ASEAN countries will be reduced to 0% in early 2018, leading to a wait-and-see mentality among customers. Along with the mentality of waiting for price reductions, the mentality of "preferring" imported cars over domestically assembled cars (even though they are the same) of Vietnamese consumers has made it very difficult for domestically assembled cars from the end of 2016 - 2017 to sell.

This can be seen that Toyota's Fortuner and Yaris models or some Hyundai cars imported from Thailand, Malaysia or Korea have not been discounted in recent times. Moreover, according to VAMA's report, by the end of July 2017, sales of domestically assembled cars decreased by 10% while imported cars increased by 9% compared to the same period.

Toyota's Fortuner line is no longer assembled domestically, so prices rarely go down.

According to Truong Hai Auto (THACO), in 2017, THACO set a target of selling 112,020 vehicles, equivalent to 2016, but the target of after-tax profit was only 5,063 billion VND, down 31% compared to 2016 (of which passenger cars were 58,384 vehicles, down 8% compared to 2016). The reason for the number of vehicles sold being equivalent but THACO's profit sharply decreasing shows that THACO has assessed that the 2017 market is quite difficult and decided to "cut profits" to increase output from price reductions. Specifically, THACO set a target of reducing product costs by an average of 5%/year and cumulatively by 2018 by 15%.

Not only that, the fact that car manufacturers are preparing to "release" new versions (imported completely) also "blocks the way" for old versions (assembled domestically) that are difficult to sell and even cannot be sold if the price difference is not much. This is also the reason why Honda CR-V has shockingly reduced the price by several hundred million VND for the domestically assembled version in just one month, because Honda is preparing to launch a new 7-seat CR-V, imported completely with a price almost equivalent to the domestically assembled CR-V before the price reduction (about 1.1 billion VND).

According to experts in this field, the deep price reduction of car manufacturers in Vietnam at this time is quite reasonable, when the psychology of waiting for price reduction from the upcoming AFTA integration roadmap combined with inventory pressure and difficulty in selling domestically assembled cars has made the manufacturers decide to cut profits and "stimulate" consumer purchasing power.

Once the remaining domestically assembled cars from 2017 are gone, car prices may increase again and if they decrease (due to reduced import tax), it is unlikely that they will decrease as much as they have now.

According to VNN