A new import rule has put pressure on auto inventory in Vietnam as smaller dealerships find it impossible to bring in more cars.
Many auto importers in Hanoi are refusing to take any new orders because they have sold out of stock.
Nguyen Tuan, director of Thien Phuc An, a car dealership in the city, said small traders have stopped importing cars because they cannot provide required documents for customs clearance.
The new regulation, which came into effect June 26, stipulates that importers of cars with less than nine seats have to show proof that they are authorized dealers for the foreign carmakers. The documents have to be notarized by Vietnamese diplomatic representatives in the country of origin.
In addition, importers are required to have qualified customer service facilities before being allowed to bring foreign cars into the country.
"Most companies like ours just had the final imports under contracts we signed earlier. As a result, our stock is running short, only able to last for two or three more months," Tuan said.
In Hai Phong, the port city through which most cars are brought into the north, car traders are also complaining of the new rule.
Hoang Thi Vinh, director of car trading firm Vinh Hoang, said many importers tried to beat the June 26 deadline with increased purchases. Since prices have surged, they could not buy as many as they wanted, she said.
"Prices have risen by around US$1,000 per unit, even by $2,000-2,500 on bestselling models," Vinh said. "We decided to halt imports, waiting for market response and further policy instructions from the government."
Other dealers said they are considering switching to importing used cars. However, the government, in an attempt to restrict car imports altogether, just raised taxes on used cars, an increase that takes effect August 15. The goal is to bring prices of old and new cars closer.
Vietnamese officials have been showing commitment to cutting the country's trade deficit.
Despite objections from local importers, the Ministry of Industry and Trade has stood by its decision, saying the new car trading rule will curb imports and will protect local consumers.
"Most Vietnamese do not use cars"¦ so it's necessary to restrict car imports as infrastructure is not well-developed and traffic congestion continues to worsen," Minister Hoang Trung Hai said last month. He said Vietnam spends around $1 billion to import new cars of less than nine seats every year and this has to be cut down.
The minister said similar trade regulations will be introduced to narrow the country's trade gap, which reached $6.65 billion for the first half of 2011.
Many car importers, however, do not think the new rule is fair. The paperwork requirements mean small traders will have to shut down business, leaving the whole auto market to bigger firms, they said.
Vinh from Hai Phong City described the regulation as a challenge that traders like herself cannot overcome. "If we want to import Toyota cars, for instance, we have to be an authorized dealer of Toyota. But then there's no way Toyota would choose us because they already have their joint venture and agents in Vietnam," she said.
"Now that many importers have been restricted, joint ventures of foreign carmakers will expand and take over our market share," Vinh said.
Ho Khac Hung, managing director of Tay Bac Car Company, also believes his company does not stand a chance.
"Major foreign auto makers have factories and exclusive distributors in Vietnam," he said. "They will never allow us to become their dealers. Instead they will boost imports themselves."
Around 1,700 companies have been importing cars of less than nine seats, with a total volume of 30,000 units per year. Many importers said when power shifts toward only a few large companies, consumers end up paying high prices for cars.