Market share in the auto industry

Vietnam’s rising income per capita would soon move cars from a luxury product with a passenger vehicle density of 34 per 1,000 to a more ordinary one with a density level comparable to countries in the region.

New regulations to change Vietnam automobile industry in 2021

Cars in Vietnam since 2021 are subject to new regulations such as registration fee, import tariff, and higher emission standards.

The Hanoitimes – Under the growing impacts of the pandemic, market demand is forecast to plunge, while oversupply and the burden of liquidating inventories would lead to lower selling prices.

Automobiles in Vietnam are bracing for a tough year with combination effects of the Covid-19 pandemic and fierce competition within the industry, according to Viet Dragon Securities Company (VDSC).

Under the growing impacts of the pandemic, market demand is forecast to plunge, while oversupply and the burden of liquidating inventories would force car companies to lower selling prices, said the brokerage firm in its latest report.

Revenues, therefore, will be strongly affected in the first half of the year but are expected to recover in the second half. Furthermore, companies have to spend more money on advertisements and discounts, in turn shrinking their respective gross profit margins (GPM) compared to the GPMs last year.

As of the end of February, sales of members under the Vietnam Automobile Manufacturers Association (VAMA) decreased by 26% to 31,908 units. In particular, sales of passenger cars and commercial vehicles recorded a decline of 30% and 12% respectively, reaching 24,458 units and 7,073 units.

Passenger car consumption fell largely due to the negative impacts of the Covid-19 pandemic on the income and consuming behavior of buyers. In terms of commercial vehicles, the decline in sales volume may have come from some factors such as (1) the production and mining sectors were stagnant because of the pandemic, and (2) the downward trend since 2017 until now. In contrast, special-purpose vehicles increased by 24% to 377 units.

So far in 2020, the number of domestically-assembled cars sold fell by 20% year-on-year to 21,296 units, while the sales of imported cars fell sharply by 38% to 12,107 units.

Supply surges

Meanwhile, the domestic supply is expected to increase rapidly. Specifically, VinFast, an auto unit of conglomerate Vingroup, with a capacity of 38 units/hour has been in operation for half of a year; Truong Hai Auto Corporation has completed a project to increase the capacity of its Kia factory from 20,000 units/year to 50,000 units/year. TC Motor plans to build a new car assembly factory in 2020, with a capacity of 100,000 vehicles per year. Ford Vietnam wants to improve its production in order to expand their market share.

Besides, the supply of imported vehicles is also expected to increase from the third quarter of 2020 when the EU – Vietnam Free Trade Agreement (EVFTA) is predicted to come into effect on July 1, 2020. This agreement would help reduce import tariffs from the current rate of 65 – 75% and eventually selling prices.

In addition, with 0% import tax for Southeast Asian countries under the  ASEAN Trade Agreement (ATIGA), it is expected that the imported cars from Thailand and Indonesia will continue to flow into Vietnam.

Prices continue to fall

According to VDSC, selling prices are expected to drop in short term as companies look to liquidate inventories and boost demand. In the long term, the report suggested that prices are likely to decline as more favorable policies are kicking in.

Specifically, the import procedures will be simplified in 2020 when some regulations are expected to be removed such as batch inspection or type quality certificates. As a result, the reduced costs will make car prices to fall further.

In case of the domestic automobile industry, the current production cost of domestic models is about 20% higher than imported cars of the same type. Normally, imported components for domestic production are subject to additional costs such as transportation, packaging and import duties.

Meanwhile, higher prices of components produced domestically are due to huge initial investment and small scale production, given the modest size of the market.

Therefore, in order to support the domestic automobile industry, by the end of 2019, the Ministry of Finance issued a Decree waiving import tax applied to car components under the preferential tax program for manufacturing and assembling cars.

Moreover, when the EVFTA takes effect, import tax on components and auto parts imported from the EU will be reduced to zero percent after seven years. By lowering the import tax for automobile components, costs of domestically-assembled vehicles are expected to decrease in the near future.

The Hanoitimes – With the Covid-19 impacts still looming on local economy, domestic car prices have gone down but remained nearly double the prices of vehicles sold in Thailand and Indonesia, mainly due to high fees and taxes for locally made cars.

Rising domestic production capacity and existing government’s support policies to cut fees and taxes for locally made cars are expected to be major factors dragging down car prices in Vietnam in the coming time.

Car production at Hyundai Thanh Cong manufacturing plant. Photo: Hoang Giang

A representative from the Truong Hai Auto Corporation (Thaco), one of Vietnam’s leading car manufacturers, expected the country’s participation in free trade agreements (FTAs) with major partners, including the EU, Japan, UK and South Korea, would help further abate costs for importing car parts with import duty at 0%.

With the Covid-19 impacts still looming on local economy, domestic car prices have gone down but remain nearly double the prices of vehicles sold in Thailand and Indonesia, mainly due to high fees and taxes for locally made cars.

“High product quality and low base cost are essential for Vietnam cars to compete with their foreign peers,” said auto expert Nguyen Minh Dong, adding only a bigger market size could attract more investors to come in to produce cars in the country and enhance localization rate.

Director of Hien Toyota noted while car manufacturers can streamline operation to drive down the production cost, taxes and fees are dependent on state policies.

“Lowering taxes and fees for cars will no doubt reduce prices and bring more benefits for customers,” she said.

Booming market demand

A recent report from the SSI Securities Corporation suggested Vietnam’s income per capita is on the rise and set to grow at an average of 8-10% in the next decade.

“Compared to regional countries, the current income per capita is fast approaching to a point of bursting demand for cars,” asserted the SSI, adding cars would soon move from the luxury category with a passenger vehicle density of 34 per 1,000 to a more ordinary one with a density level comparable to countries in the region.

The SSI also pointed to a key factor that the domestic car market is big enough for car manufacturers to shift from importing cars to assembling/manufacturing domestically.

At present, six major car manufacturers of Thaco, Huyndai, Toyota, Mitsubishi, Ford and Honda account for 90% of the market share in Vietnam with a combined production capacity of 30,000-60,000 units per year, exceeding the break-even point for domestically-produced cars of 30,000-40,000 cars per year for an assembling plant, or 10,000-20,000 units for each car model.

According to the SSI, domestic car production capacity  is increasing rapidly to meet customers demand, a key step to lower car prices.

With more cars manufacturing and assembling plants scheduled to complete in the 2022-23 period, the SSI expects a heating up car markets with steep discount policies would drive up domestic car demands.

Along with existing Vietnam’s support policies for the automobile industry, the National Assembly is currently discussing a possibility of reducing the excise tax rate for locally made cars, in which the specific reduced rate would be in line with the localization rate, aiming to boost sales of affordable car models.

Ninh Binh (VNA) – Auto manufacturer Thanh Cong Group has set itself a target of producing 75,000 motor vehicles this year, raising its production rate to 11.3 per hour.

A representative from the manufacturer revealed the information during a working session with a delegation from the Ninh Binh Party Committee on February 18 at the Hyundai Thanh Cong facility in the northern province’s Gian Khau Industrial Park.

Despite the negative impact of COVID-19 last year, Thanh Cong Group manufactured in excess of 66,800 passenger vehicles, excluding coaches, at a rate of 11 per hour. The facility has 3,163 employees in total.

This year the group will focus on the construction of its Hyundai Thanh Cong 2 plant (HTMV 2), which is projected to be completed in July next year, and will push ahead with its digital transformation efforts.

During the working session, Secretary of the Ninh Binh Party Committee Nguyen Thi Thu Ha spoke highly of the achievements of Thanh Cong Group last year, particularly in automobile manufacturing, which affirmed its position as having the largest share in Vietnam’s auto market.

Local authorities will work to complete institutions and policies to facilitate the development of companies in the province, she pledged.

Thanh Cong Group’s auto manufacturing revenue accounted for 30.8 percent of Ninh Binh’s industrial production value last year. The province posted economic growth of 6.35 percent for the year, placing it among the country’s top 10 and ranking it fourth in the Red River Delta./.

VNA