Auto makers project bumpy years ahead

Car manufacturers are calling for the reinstatement of measures used during the pandemic in order to help boost flagging vehicle sales.

In a document sent to the prime minister last week, the Vietnam Automobile Manufacturers Association (VAMA) along with other associations asked the government to extend the payment of special consumption tax and reduce the registration fee of domestically manufactured and assembled cars by a half this year, in order to stimulate demand.

A VAMA representative said that the domestic car sales market is in a gloomy situation, and has been struggling like many other industries since 2020. “In order to stimulate market demand, we need strong enough policies like extending the payment of excise tax in 2023 and taking 50 per cent off the registration fee. These should be applied as soon as possible,” emphasised the representative.

To combat the effects of the pandemic, the government chopped the registration fee in half for domestically manufactured and assembled cars, which took effect from July 2020 to the end of that year. In 2021, when auto businesses were still struggling, the policy was reissued from December 2021 to the end of May 2022.

But since that time, credit tightening and interest rate rises have caused market liquidity to narrow. Auto manufacturers are struggling with large inventories and a sharp drop in purchasing power.

A report from VAMA showed that first-month sales of the whole market reached 17,852 vehicles, down 60 per cent on-month and 54 per cent on-year. Domestic car sales in January halved to 9,228 vehicles. One car brand reported sales volume at only 30 per cent of the previous month, an unusual occurrence for this time of the year.

At Thanh Cong Group, sales reported a sharp decrease. In January, the sales volume reached nearly 3,000 vehicles, a decrease of almost 5,000 compared to January 2021, and a decrease of more than 3,700 vehicles compared to January 2022.

The Vietnam Association of Mechanical Industry (VAMI) also stated that the fall in consumption has led to a decline in orders in the supporting industry and mechanical engineering. “In the short term, if purchasing power does not improve and the market does not brighten again, manufacturers will have to reduce capacity and labour in order to reduce inventories,” said a VAMI representative.

Nguyen Quang Khai, sales manager at Phu My Ford dealership, said that a cut in registration fees for domestically assembled cars can become a driver to stimulate demand. “But that is one factor only. Synchronous solutions are also necessary like credit policies and promotions of distribution agents,” said Khai.

Due to inflation, people are considering carefully before spending, Khai added. “Therefore, to revive purchasing power, the government should consider removing difficulties and unlock capital flows, lower lending interest rates of banks and credit institutions, and reduce registration fees for cars,” added Khai.

Vu Tan Cong, deputy general director of Vietnam Automobile Industry and Trade Consulting, said that the latest proposal would be good news for both consumers and manufacturers. However, amid the current market context, it is necessary to apply other synchronous solutions.

“The market is currently under pressure of inflation, exchange rates, and interest rates increasing, and so consumers tighten spending on high-value goods,” said Cong. “Therefore, if only the registration fee is changed, it will still be difficult to boost car purchases when cash flow is constricted, and loan interest rates are too high a level.”

In recent months, numerous manufacturers and distributors in Vietnam have been applying discounts on the registration fee. While some firms are supporting the entire fee for some models, sales are not improving.

Others said that it may not be a good time to cut registration fees. Truong Dang Tan, director of a driver training centre in Hanoi said, “Previously, the registration fee cut was the right decision to stimulate demand, revive businesses, and increase total budget revenue. But currently, cutting them may simply benefit car manufacturers only,” Tan said.

In 2023, the forecast for the auto market is as bleak as in the pandemic peak. According to Hyundai Thanh Cong, the decline in sales for the industry this year could be 17.5 per cent compared to 2022, equivalent to a drop of more than 85,500 vehicles. In a long-term view over the next five years, the company is currently anticipating a 37 per cent loss in sales.

Vietnam Investment Review