Thai imported cars and the harsh reality of Vietnam's auto industry

Not only has Thailand surpassed the number 1 position, but it has even begun to leave behind 11 other countries and territories exporting cars to Vietnam, in terms of both quantity and value.

Compared to the US, Germany, Japan, South Korea, UK, France, Sweden, Italy and even Russia, Thailand can still be considered a powerhouse on the world auto industry map.

However, in the past 3 years, the number of imported cars from Thailand has been increasing rapidly, quickly catching up with the major powers and now officially climbing to the top position. Why is that?

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Consumers will switch to buying new imported cars instead of expensive used cars. Photo: QH

Southeast Asian common market

The most straightforward answer is that in just over a year, the Southeast Asian region will become a common automotive market. The door to a vast market with a population of more than 600 million people is the ASEAN Trade in Goods Agreement (ATGIA).

According to this agreement, from January 1, 2018, the import tax rate for complete cars from countries in the region will be reduced to 0%, which can be considered as eliminated. Of course, the condition to enjoy this tax rate is that the car must have a localization rate of 40% or more.

In the Southeast Asia region today, Vietnam, along with Thailand and Indonesia, are the three countries where the world's automobile corporations have many manufacturing and assembly plants. However, if calculated at this point, only cars assembled in Thailand and Indonesia are eligible for a 0% tax rate when exported to other markets in the region.

In Vietnam, Truong Hai is the car company with the best localization rate for passenger vehicles under 10 seats at over 32% and is striving to reach 40% to be able to export to ASEAN.

Most notably is Thailand. This country has actually become one of the world's major auto industry centers, considered the Detroit of Southeast Asia. Its biggest advantage is the production of components and spare parts to supply to the world's auto corporations.

It is noteworthy that currently, most popular car brands favored by Vietnamese consumers such as Toyota, Ford or Honda are being manufactured and assembled in Thailand.

Vietnam has long been considered a potential automobile market. That is also an important reason for a series of large corporations to enter into joint ventures and build factories.

However, 25 years of struggling with incomplete development policies, especially the market being suppressed by the need to limit personal vehicles due to inadequate infrastructure, traffic accidents and congestion are always so high that they are considered a problem. This reality makes the market capacity not large enough for car manufacturers to increase the localization rate and reduce production costs.

Therefore, the ATIGA tax reduction roadmap is like an opportunity for car manufacturers to switch from domestic production and assembly to import, from importing from their home country or other countries to importing from Thailand and Indonesia.

"Sunset" of the domestic auto industry

3-5 years ago, the number of car models imported by Toyota was very small with Land Cruiser, Prado, Yaris or Hilux; Honda only had Accord and most recently Odyssey... But at this time, the list of imported cars of major car manufacturers in Vietnam has become dense and continues to increase.

The most surprising thing is that even with car models that once took the market by storm and are still popular, large joint ventures still decided to switch to importing completely built-up units instead of continuing to assemble domestically.

Let’s take a few examples. Before Ranger triggered the boom in the pickup truck segment, Everest was the best-selling model and contributed greatly to Ford’s reputation in the Vietnamese market. However, surprisingly, at the end of 2015, Ford decided to import the new generation Everest instead of continuing to assemble it.

With the "big guy" Toyota, the rumors about the new Fortuner are also gradually being proven. Although it will not be until early 2017 that the Japanese car company officially launches the new Fortuner on the market, but at this time, a series of dealers have started to take orders with information "imported" from Thailand. Knowing that, along with Vios and Innova, Fortuner is also one of the best-selling models of Toyota Vietnam.

Another typical example is Honda Civic. Nearly a decade of domestic assembly, Civic also had a golden period in the Vietnamese market. And similar to Ford's Everest, Honda suddenly imported Civic from Thailand.

For a long time, the car models imported by many auto joint ventures have been mainly for brand development purposes and not for high sales targets. This is a view that is supported when the domestic auto industry still has many… expectations. However, as mentioned, the current situation is different from the typical examples of Toyota Fortuner, Honda Civic or Ford Everest.

Returning to the example of the 7-seat SUV Ford Everest. After importing and selling to the market, there were opinions, even from within Ford Vietnam, that the decision to import was a mistake that caused the selling price of Everest to skyrocket. If the assembly continued, the retail price of Everest would certainly be lower and accordingly, sales volume would not be as low as it is now.

However, behind that, in fact, it is a "strategic" step of the American car company to prepare for the common market of Southeast Asia. Specifically, from 2018, when the tax rate is 0%, the price of Everest cars will certainly decrease significantly and the sales problem will naturally have a satisfactory solution.

So does Honda, so does Mitsubishi, so does Suzuki, so does Mercedes-Benz and so does Toyota.

It is necessary to be fair when looking at the phenomenon of rapidly shifting the proportion of assembled cars to imported cars of car manufacturers with domestic factories. That is, from a business perspective, wherever there are better conditions, businesses will move there, when importing is more profitable, it is not foolish for foreign car manufacturers to continue assembling in Vietnam.

In a recent conversation, the head of a large domestic automobile company admitted that “their joint ventures come to Vietnam to seek profit, and profit is the top priority. When this factor is threatened, they have their own reasons for leaving. If the tax is 0%, and Thailand is better, they will go there to work, why stay in Vietnam?”

That is a reality that needs and should be acknowledged. For foreign car manufacturers, when there is not much time left until 2018 and especially when the support policies for domestic production, more specifically the specific policies after the new phase of the automobile industry strategy announced 2 years ago are not clear, switching to imports instead of continuing to "cling" to domestic factories is clearly a priority choice.

In fact, the dominance of imported cars from Thailand, according to the statistics of the General Department of Customs mentioned above, is clearly demonstrating the harsh reality of the domestic automobile industry.

However, in the writer's opinion, the auto industry is not without bright spots, at least expectations.

In Vietnam's current automobile industry, apart from a number of state-owned enterprises such as Vietnam Automobile Industry Corporation (Vinamotor), Vietnam Engine and Agricultural Machinery Corporation (VEAM), there are two notable private enterprises, Truong Hai Automobile Joint Stock Company (Thaco Group) and Hyundai Thanh Cong Joint Stock Company. These are the two remaining names with efforts and commitments to increase domestic production to export to Southeast Asia.

Thaco, like Hyundai Thanh Cong, are both privately-owned enterprises. Therefore, their efforts (at least publicly) are to produce in Vietnam, for the Vietnamese auto industry. As the owner of Thaco confided, “I am Vietnamese, no matter how good or bad things are, I will still do it, still be passionate about developing the auto industry to contribute long-term to the country’s economy.”

According to Duc Tho/vneconomy