Over-Heated Auto Prices to Chill in Vietnam

Over-Heated Auto Prices to Chill in Vietnam

Skyrocketing prices in the auto industry are likely to level off as new automakers are set to enter the market, and government prepares for tariff reductions, said auto industry experts.

Currently, the cost of buying a new car in Vietnam is 1.3 to 1.8 times higher than that in other Southeast Asian countries, according to market experts. In the last year, the prices of all cars manufactured in the country were up 12 to 30 percent on average.

The surge was fueled by the government’s decision to increase excise duties on units from 24 to 40 percent, said major automakers.

Roaring production costs

"The prices of materials like oil, steel, and iron have been rising in the global market, pushing up production costs," said Toyota Motor Vietnam (TMV).

However, the firm claimed it and other automakers only raised prices in line with the rise in luxury tax, which falls on customers.

"In fact, we only collected duties for the government, we did not benefit from raising car prices," TMV said. 

Market experts said expensive costs of imported automotive parts had also contributed to the increase. Currently, the prices of automotive parts in Vietnam are 1.7 to three times more costly than in other countries.

Despite the sky-high prices, sales of cars in the country continue to soar as surging demand outstrips supply.

New players

The emergence of new automakers in Vietnam should contribute to stabilize prices, market experts said.

In mid-March, Japanese automobile giant Honda announced it would introduce to the Vietnamese market its Honda Civic car by mid-2006.

Meanwhile, a joint-venture among Japan’s Nissan, Malaysia’s Tan Chong, and a Vietnamese mechanical firm has been moving to get a business license to start automobile production in Vietnam.

Also, Taiwanese industrial group Chinfon is taking final steps to launch a US$70-million project to manufacture cars in Vietnam. Chinfon is the parent company of Vietnam-based motor-maker VMEP - Vietnam Manufacturing and Export Processing Co Ltd, which produces SYM and Angel label motorbikes.

"Vietnam is a market with enormous potentials," said Satoshi Toshida, a Honda high-ranking official.

General Director Hiroshi Sekiguchi of Honda Vietnam, the Japanese giants’ subsidiary, said the company would target a high ratio of domestically produced components in Honda cars assembled in Vietnam to lower prices.

"It is a competitive advantage," he said.

Tariff cuts

The Vietnamese Ministry of Finance is conducting negotiations with Southeast Asian governments over reductions of import duties on automobiles, experts said.

Tariffs on two-to-ten-seat cars imported into Vietnam from ASEAN countries are expected to be cut from 100 percent down to 20 percent in 2008, and five percent in 2009.

The government has protected the domestic car industry for a very long time, therefore such a tax reduction is totally reasonable, experts said.

At that time, auto prices should decrease in the domestic market as customers might prefer imported cars rather than vehicles assembled domestically, experts said.

• Young People Online