New Policy of Automobile Industry Would Be Implemented in Vietnam from Jan.1, 2018

According to CRI’s information from the Vietnamese government, the new policy of automobile production and sales would be implemented in Vietnam from Jan. 1, 2018. The main contents include: (1) Imported cars from ASEAN are exempted from import duty, but more than 40% of auto parts should be manufactured in ASEAN. (2) The import tax of parts of passenger vehicles with less than9 seats is cut to zero, but assembly plants are in demand in Vietnam. Also, the assembly volume of passenger vehicles (with less than 9 seats and smaller than 2.5 liters of car emissions) shall exceed 8,000 in Vietnam. There shall be at least one car model with an assembly volume of more than 3,000 annually. (3) Raising the import tax of used cars is recommended. Used cars are divided into two types to be levied with import taxes in terms of car emissions–1 liter or less and bigger than 1 liter. On the one hand, the import tax of USD 10,000 is levied on vehicles with emissions of 1 liter or less, so import prices of used cars are doubled previous prices. On the other hand, for vehicles with car emissions of bigger than1 liter, the import tax increases from thousands of dollars to tens of thousands of dollars, according to different car emissions. (4) Exhaust emissions of vehicles sold in Vietnam shall meet the Euro IV standard. If not, such vehicles cannot go through inspection formalities. (5) Vehicles exceeding their useful lives will be recalled. Vehicle manufacturers are responsible to recall their vehicles. At the same time, they can enjoy favorable supporting policies, as well as cooperate with other agencies to recall vehicles exceeding service lives.

Related Report: Automobile Industry Forecast to 2021: Singapore,Thailand,Philippines,Malaysia,Indonesia,Vietnam,Myanmar,Brunei,Laos and Cambodia

The above policies can promote the development the automobile assembly industry in Vietnam to some extent, and have placed a ban on imported used cars. According to CRI’s analysis, the overall domestic automobile and parts manufacturing in Vietnam is weak. According to the market research from CRI, over 200 auto parts enterprises can only produce low-tech parts such as car seats and tires. On the whole, Vietnam lacks a complete industrial chain of automotive manufacturing. By the end of 2017, Vietnam had less than 20 auto assembly enterprises. The demand for automobiles in Vietnam is on the rise as its economy develops rapidly. From 2012 to 2016, the output volume of assembled automobiles in Vietnam was rising. In 2012, the output volume was only 87,000 and reached 246,000 in 2016, representing a CAGR of over 30% during 2012-2016. In addition, a large number of new and used cars are imported to Vietnam every year.

According to CRI, for leading Japanese auto makers such as Toyota Motor and Mazda Motor, which have set up large automobile plants in Thailand and other ASEAN countries, auto manufacturing costs in Vietnam are high than that in Thailand and other nations where the automobile industry chain is complete. It is likely that auto giants such as Toyota may shut down automobile assembly plants in Vietnam and export vehicles from Thailand and other countries to Vietnam instead, in 2018 or later. However, for those small and medium-size vehicle manufacturers which do not have assembly plants for whole vehicles in other ASEAN countries, such as some car brands in China and India, Vietnam has great market potentials. These small and medium-sized automobile enterprises can import main parts, and manufacture or purchase some other parts in ASEAN to assemble cars in Vietnam so as to reduce spending on tariffs and production costs and to hold some market shares due to the elimination of some import tariffs on auto parts.

According to the CRI’s analysis, the current annual income of Vietnamese households is less than USD 4,000. Even in the most developed Ho Chi Minh City, most families have annual income of less than USD 10,000.The vehicle reserve volume in Vietnam is less than 20 per one thousand people, much lower than the global average. Therefore, most residents choose motorcycles as their transportation methods, for they cannot afford vehicles of international brand with an average selling price of over USD 15,000. Before 2018, a large number of used cars were imported into Vietnam every year. They were cheap but not guaranteed. Due to the implementation of the new policy, legal importation will be hardly possible. According to the CRI, new vehicles at low cost are expected to be welcomed in the Vietnamese market. It is estimated that the automobile manufacturers from China, India and other countries will be able to provide cars priced between USD 5,000 and USD 10,000throughassembling cars in Vietnam. Obviously, these new vehicles will be the first choice for many Vietnamese families.