Motorbikes have been dominating the roads of Vietnam over the years but now the demand for car is likely to increase exponentially from 2018 especially, the imported ones.
This is because the country is a member nation of Association of Southeast Asian Nations (ASEAN) and is committed to ASEAN Free Trade Agreement (FTA). According to the agreement, all tariffs on imports from ASEAN nations will be removed in 2018.
As a part of AFTA commitment, Vietnam reduced import duty on auto segment of nine seats and less to 30% from 40% in 2017; as a result the cost of imported car—Complete Built Up (CBU)—in Vietnam reduced to USD $500 – USD $1,000 (varying for different models) almost equaling the price of domestically manufactured or assembled cars.
The tariff will further drop down to zero from 30% from year 2018. This is going to further decrease the price of imported car but the price of locally assembled vehicle will remain the same, which means domestically manufactured vehicle is going to be expensive in comparison to the imported ones.
With zero tariffs, it is forecasted that some locally assembled cars will be as high as 2.5 times expensive than similar type imported ones. The cost advantage (low price) of foreign made car is likely to push consumers to purchase imported car over the locally assembled ones.
Besides, Vietnam has ratified many Free Trade Agreements with other blocs and nations, importantly the FTA with South Korea. The Vietnam and Korea—VKFTA—will probably further boost import of automobile in this Southeast Asian nation from South Korea. As per VKFTA, both the countries will be lowering import tariffs to around 95% within 15 years and the agreement is already in effect since 2015. Probably, this will also significantly increase the number of imported cars in Vietnam as South Korea is one of the key car suppliers for Vietnam.
Anticipating upcoming challenges and their impacts on local manufacturers and assemblers, Toyota Vietnam, has planned to quit assembling of some models and start importing CBU—Fortuner— from neighboring ASEAN country especially, Thailand. The import decision will help them maintain their margins and alleviate some of the pricing pressures that come with local assembled ones.
However, few other OEMs are planning to increase their capacity to compete with imported cars but competing on price as well as quality to achieve economics with scale seems an uphill challenge for now. Imported cars do bring in advantages of lower costs, better technology and quality besides bringing in fierce competition for the local play.
Car imports in Vietnam is a reality that is going to hit the industry shortly. It may open up significant opportunities for the importers in the industry, nonetheless, the local OEMs may have to gear up to face the challenge or perish.
Subarna Poudel is a researcher with Frost & Sullivan. He can be reached at email@example.com
Sapan Agarwal drives content and marketing for Frost & Sullivan. Sapan is based out of Kuala Lumpur Malaysia and can be reached at firstname.lastname@example.org | +603 6204 5830