Vietnam Automotives Report Q1 2007

Price cuts among carmakers based in Vietnam, as well as lower tariffs for new imported vehicles have supported an upturn in the automotive market. BMI's latest Vietnam Automotives Report highlights how December sales of 12 members of the Vietnam Automobile Manufacturers Association (VAMA) combined were 62% higher than November and 27% higher than December 2005, resulting in a full year decline of just 0.95%, compared with a fall of around 18% in 2005. The Report goes on to examine how the expected influx of cheap used imports was averted through changes in tariffs, which actually served to make new imports more cost-effective, particularly in the small to mid-range segments.

Subsequently, however, luxury carmakers have been threatened by second-hand imports and this has resulted in manufacturers such as Mercedes-Benz joining the wave of price cuts: perhaps long overdue, as retail prices are around 20% higher in Vietnam than most other countries, manufacturers such asbToyota began cutting prices on its Altis and Vios models last year, closely followed by US rival Ford, taking US$1,500 off the price tag of its Focus. Mercedes joined the fray, slashing as much as US$15,00 off its Avantgarde model and US$10,000 from the C-Class, in order to compete with the cheaper secondhand alternatives. There is another threat, however, among the new imports and it comes from China February will see the launch of a number of Chinese models, including offerings for the premium segment, where manufacturers claim that some models will sell for US$20,000 or less Although carmakers based in the country may not be relishing the new tariff structure, the lowering of prices comes as a welcome relief for consumers and the liberalisation of the industry has also pushed Vietnam up to third in BMI's Business Environment Ranking for the automotive industry in Asia Pacific This is due to a slight increase in the country's economic risk rating, as well as an improvement in the country's rating for the regulatory environment, after entering the World Trade Organisation (WTO). In addition, the country's low rate of vehicle ownership continues to provide plenty of opportunity for would-be investors Despite the changes in the industry, in terms of tariff structure and the possible permanent lowering of prices, the competitive landscape remains largely unchanged, with Toyota leading the charge to claim over 40% of the market in 2006. The Japanese brand was also one of the few among the 12 carmakers from VAMA to record an increase in sales over the year. The worst hit was Vidamco, the local representative for GM Daewoo, which saw its sales fall by 61% to drag its market share down from over 11% in 2005 to 4.71% in 2006. If prices continue to fall and the import segment meets BMI's expectations of growth, however, the market looks set to become more competitive.