Visitors to Vietnam are often taken aback by the sheer density of motorbikes on its streets. But soon, many may be replaced by cars. Nissan recently appointed Bates141 as its agency in the market ahead of what is expected to be a concerted push to build its presence.
Car ownership is still an exclusive club. Only three out of every 1,000 Vietnamese own a four-wheeled vehicle. “In Vietnam, owning a car is the fancy of the rich,” says Ashish Kanchan, research director, TNS Vietnam. “Everyone wants high-end cars with lush interiors. They buy them fully-loaded, with LCD screens everywhere.”
In April, Mercedes-Benz Vietnam, one of a dozen foreign car brands that assemble their vehicles in-country, launched its GLK SUV for US$77,900, and sales were brisk. Meanwhile, BMW, which ended its decades-long contract with a local assembler in 2007, is now imported by Euro Auto Corp, and introduced its budget model, BMW 320i. It was quickly back-ordered at a price of US$59,000.
The Vietnam Automobile Manufacturers Association (Vama) tracks the output of its 16 members — a dozen of which assemble foreign brand cars - and Vama data show sales of locally assembled vehicles at 110,446 units last year. Of these, more than half were locally branded trucks and utility vehicles, while the remainder was passenger cars and SUV/MPVs bearing mostly foreign nameplates.
Vama data show that Vietnam’s vehicles sales peaked last year and, as in most markets, began a painful downward slide. From January to May, only one locally assembled foreign brand - Mercedes — saw growth, selling 1,259 units, down 40 per cent from that same period in 2008. In contrast, Vietnam’s total vehicles sales fell 35 per cent to 38,209 units. Market leader Toyota endured a mild 14 per cent decline to 8,756 units, while the other locally made foreign brands fared less well. For GM-Daewoo, sales fell 34 per cent to 3,894 units, while Ford was down 28 per cent to 2,461 units.
Michael Pease, general director, Ford Vietnam believes a recovery is underway and will be led by small passenger cars. Vama data shows passenger car sales up 21 per cent to 2,496 units for May, while sales of SUV/MPVs languish (down 46 per cent) and commercial vehicles struggle (down 28 per cent).
Whether or not this happens depends on price. “The Government raised taxes five times this year,” says Pease. “Vietnam is a young market economy, and the Government sees cars as a luxury that can be taxed.”
Foreign carmakers arrived in 1995, and to protect this fledgling industry, onerous taxes were levied on imports. The current import tax on new cars is 83 per cent. In theory, this should steadily decline as Vietnam is a signatory to the Asean treaty, and in 2007, the World Trade Organisation (WTO). According to its WTO commitment, import tax will be reduced to six per cent in 2013 and to zero beginning in 2018.
Nguyen Thanh Phu, senior manager, Nielsen Vietnam, sees pent up demand for cars that serve as modest transportation. “In Ho Chi Minh City and Hanoi, we estimate there are 200,000 potential car buyers,” says Nguyen. “These are people who earn $1,000 a month. Many of them already are well off enough to live in a ‘front’ house rather than a condo or apartment.”
Tushar Desai, emerging markets business development and insights director at Synovate Motoresearch, which covers Vietnam from Singapore, says the market could look very different in three to five years. “The question is: when will the government make its policies consumer-oriented and bring down prices for good?”
Desai sees the arrival of Chinese brands as a sign of the future. Chery, Great Wall, and Lifan are already in the car market in Vietnam. VMC, the assembler for Kia, Mazda and Subaru, has joined forces with Chery, and began assembling its QQ3 earlier this year, and the small, economically priced car had a gala launch in mid-April.
Vietnam, then, could prove a battleground between the ‘established’ car manufacturers and the new crop of companies from emerging markets.
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