Imported cars flood in, what is the way out for domestic cars?

The appearance of the official dealership and showroom of two luxury car brands Bentley (UK) and Lamborghini (Italy) in My Dinh area, Hanoi in the next few months shows that Vietnam is an attractive market for imported cars. It is estimated that the import turnover of completely built-up cars in the first 4 months of this year has exceeded 15,000 units, worth 329 million USD, up 76.6% compared to the same period in 2013, according to the General Statistics Office.

Crowded with imported cars

Mr. Do Kinh Su, a seafood businessman, shows off his BMW320 he just bought at a showroom on An Duong Vuong Street in District 5, Ho Chi Minh City for $78,000. “It took me 4 months to get this one. Imported cars are in high demand,” he said.

According to the owner of the BMW320 and some car dealers in Ho Chi Minh City, this showroom specializes in selling imported cars and has been doing well since the beginning of the year with sales increasing by about 15% compared to the same period last year. This business is contributing to the bright picture of the current imported car segment.

The market for imported cars is growing strongly as 2018 approaches.

Vietnam currently imports complete cars from 13 countries and territories, of which the ASEAN region is in third place and is likely to make a breakthrough in the near future. According to the General Department of Customs, the import turnover of cars from Thailand in the first quarter of this year was 1,746 units, equivalent to 28.8 million USD, equal to the total import turnover of cars from ASEAN in the first quarter of 2013.

There are two reasons for the strong growth of the imported car market. First, the registration fee for cars with less than 10 seats in Ho Chi Minh City has decreased from 15% to 10% at the beginning of this year, along with increasingly open car loan policies from credit institutions.

Second, since the beginning of the year, the import tax rate for completely built-up cars from ASEAN has been reduced to 50%, instead of 60% in 2013. This is a roadmap to gradually reduce the import tax on completely built-up cars from ASEAN countries to 0%, expected in 2018.

Existing risks

In fact, due to the still high gap between the import tax on complete units from ASEAN of 50% and the highest import tax on components of 25%, many businesses are still manufacturing and assembling in Vietnam. However, there is not much time left for Vietnam to improve the competitiveness of the domestic automobile industry. And it is likely that Vietnam will fall into a similar situation as the Philippines a few years ago, when the market was not yet developed, inconsistent policies forced manufacturers to decide to switch to import and distribution.

It should be recalled that before the end of his term more than 2 years ago, Mr. Akito Tachibana, former General Director of Toyota Vietnam, predicted that by 2018, at most only 3 foreign-invested automobile enterprises would be able to survive, the other units would operate under the import model. Thailand and Indonesia will continue to receive investment projects worth billions of dollars from car manufacturers such as Toyota, Ford, Suzuki, Nissan, etc.

“I think Vietnam is a fairly large automobile market. However, its development depends on the planning and implementation of government policies,” said Jesus Metelo Arias, General Director of Ford Vietnam and Chairman of the Vietnam Automobile Manufacturers Association (VAMA).

According to him, if there is reasonable support for special consumption tax as well as domestic car production costs, domestically assembled products can still compete with imported cars.

Recently, VAMA has proposed to the management agency to change the way of calculating special consumption tax on imported cars to avoid causing disadvantages for domestically assembled cars.

Currently, domestically assembled cars are taxed based on wholesale prices, including sales costs. Meanwhile, imported cars are taxed based on CIF prices (including product cost, shipping costs and insurance costs) but do not include sales costs such as advertising, dealer commissions, etc. This leads to the price of domestically assembled cars being about 5% higher than imported cars.

Responding to this proposal, 6 enterprises importing completely built-up cars of the brands Audi, BMW, Porsche, Volkswagen, Subaru and Renault said that the current method of calculating special consumption tax is completely fair. According to them, the CIF price for imported cars used in calculating special consumption tax includes production and marketing costs, so the selling price in Vietnam is not lower than domestically assembled cars.

The debate on how to calculate special consumption tax between VAMA members and the group of 6 car importers has not yet come to an end. It is similar to the strategy and planning of the automobile industry until 2020 and the vision to 2030 of the Ministry of Industry and Trade, which has not yet been completed. The longer this situation lasts, the greater the risk that domestic cars will have to give way to imported cars as 2018 approaches.

According to nhipcaudautu