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Uncertainties to cast shadow on Vietnam car market in 2021

The outlook of the car market for next year remains dim following a turbulent year in 2020.

The year of 2021 is set to be another difficult one for Vietnam’s car market, especially when the Covid-19 pandemic continues to remain complicated globally and businesses tighten their spending, according to Head of the Policy Department under Vietnam Automobile Manufacturers Association (VAMA) Nguyen Trung Hieu.

“During this context, the government has not come up with another supporting program in replacement of the current 50% reduction in the registration fee for domestically-produced cars that is set to expire this year-end,” Mr. Hieu added.

Sharing Mr. Hieu’s view, Director of auto dealership Thien Phuc An company Nguyen Tuan said in case the market continues to stay quiet, car dealers may have to provide their own sales promotion programs for customers to keep up revenue.

Car manufacturer Vinfast, owned by conglomerate Vingroup, has recently announced its policy of supporting the registration fees for customers who have already paid upfront and are set to receive its Fadil models in 2021.

Vinfast is also offering a cash gift program of up to VND50 million (US$2,200) for different models of Lux SA2.0, Lux A2.0 and Fadil.

Mr. Hieu from Thien Phuc An expressed his concern that 80% of car parts for domestic production are currently imported from abroad, resulting in higher production cost of 10 – 20% compared to that of regional countries.

“The fee to import completely-built-units, meanwhile, only makes up 5% of the car prices,” he suggested.

From July 10, 2020, the government’s Decree No.57 amending and supplementing Decree No. 122, allows domestic assembling companies (meeting standards) to be entitled with 0% import tariff on raw materials, components and supplies which cannot be produced locally.

The recently-signed EU – Vietnam Free Trade Agreement (EVFTA) is set to be another positive note for the car market with those imported from EU are entitled to a reduction in import duty of 7% and to 0% in the next 10 years.

Car expert Vinh Nam, however, noted customers should not expect a sharp decline in car imports from Europe, especially as the import duty cut is a gradual process and the tax rate of excise tax for car imports are based on the sale price, which includes profit of car dealers.

In fact, the domestic car market expected car prices would decrease by 20-25% after the ASEAN Free Trade Agreement (AFTA) became effective in 2018, providing zero import tariff from cars imports in ASEAn countries, but the reality proved otherwise.

Ups and downs in 2020

The car market in 2020 witnessed many ups and downs during a turbulent year caused by the Covid-19 pandemic.

In the first half of this year, the outbreak of Covid-19 in Vietnam and the subsequent social-distancing order nationwide forced car manufacturers such as Ford, Toyota, TC Motor, or Honda to suspend operation.

Statistics from VAMA revealed the number of cars sold during this period declined by 30.6% year-on-year to 107,183 units.

In an effort to heat up the car market, the government adopted a number of supporting policies to boost sales of made-in Vietnam cars in the remaining months of the year, including the decision to slash the registration fee for domestically-produced cars by 50%, effective from June 28, and the extension of the deadline for payment of excise taxes for domestically-produced/assembled cars until late 2020.

Such polices helped the car sales figure to return in the growing trend with 27,252 units in September, up 32% month-on-month; 33,254 in October (22%), and 36,359 (9%).

Overall, car sales in Vietnam in the January–November period dropped 14% year-on-year to 246,768 units across all segments. Meanwhile, sales of domestically assembled cars reached 158,306 units during the period, down 7% compared to the same period of last year, while imported completely-built-units (CBUs) totaled 90,462 units (-24%).

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