Car Prices Keep on Falling

Not long ago, in a debate at the National Assembly, Finance Minister Nguyen Sinh Hung expressed concern over the high price of cars causing anxiety among consumers. In an effort to protect the “young” car industry, the State has levied tax rates in favour of local enterprises. However, after 10 years of domestic favour, local production makes up less than 20 per cent of the demand. In such circumstances, policy-makers have to conduct a comprehensive review of the development strategy of the auto industry in the interests of the State, businesses and consumers alike.

 

According to Minister Nguyen Sinh Hung, protectionism for the auto industry cannot continue forever at the expense of the consumers. In Vietnam, car prices are the highest in the world, 2-3 times higher than in developing countries and 1.5 times higher that in the region. Even if Vietnam’s Automobile Association (VAMA) maintains these high prices, the Finance Minister will recommend that the National Assembly reduce the import tax to ensure customers choice between imported and local cars.

 

Contrary to earlier statements on higher prices, several VAMA members have kept the same price and launched promotion programmes to increase their sales. Mr Nguyen Van Quy, Deputy Director of Vidamco (producing GM Daewoo cars) said that his company had not increased their price and must make plans for the coming year. For his part, Mr Nguyen Van Khoi, Deputy Director General of Ford Company believed that the price could not be increased in 2006 as the conditions are becoming increasingly difficult.

 

With the application of the special consumption tax endorsed by the National Assembly on November 28, 2005, information on prices in the market was highly confused. For the same kind of car, the reduction in some place was US$2,000 and in others US$3,000. Several sales agents have offered attractive promotion programmes of free registration for tax and license plates and free choice of colours among other incentives. In particular, Toyota promised to reduce prices by thousands of US dollars for immediate deposit or signing of sales contract. It has also increased the introduction of instalment sales to other provinces.

 

Vietnam is also under pressure in the negotiations for WTO accession. The US and Japan asked to reduce the import car taxes from 80 per cent to 50 per cent and allow the import of used cars. The expected influx of used cars has increased the price fall. The price would be only 30-50 per cent of a new car. (The import tax on used cars is 150 per cent of a new car). As a result, Ford intended to reduce the output of its main products the Mondeo 2.0, the Escape 2.3L, and the Escape 3.0; and Vidamco launched special promotional programmes with a reduction of US$3,000 on most of its cars, the Magnus, Lacetti, Gentra, Lanos, and Matiz.

 

For their parts, some Vietnamese enterprises also plan to import production lines to assemble cars. Evidently, the reduction of car prices will continue.