Circular 20 puts the squeeze on car dealers

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Many dealerships are struggling to survive under new rules that restrict the import of both new and secondhand cars.

Some firms now are just trying to sell out their stock and many others are teetering on the verge of bankruptcy.

"In over two months since Circular 20 took effect, we have not been able to import more cars. We are now selling what we have in stock. However, this is not large, some 30 units, and will last maybe one or two months," said Nguyen Duc Viet, auto import and export manager of car dealership Bao Viet.

"When they are sold out, we may shut down the business," Viet said.

Circular 20, 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.

Many dealers said they will never be able to get the required documents. Foreign auto companies which have joint ventures in Vietnam will not give any such authorization to importers, they said.

"The situation has never been this bad. Without products to sell, we don't know how to pay interest on bank loans of over VND3 billion (US$144,000) we used to upgrade our showrooms early this year, not to mention their rents of over $10,000 each month," Viet said.

Viet said his firm had to scrap its plan to open a 3,000-square meter supermarket of imported cars in Hanoi late this year.

Some small and medium-sized enterprises have even announced they are selling their showrooms to change the business, but it is difficult for them to find customers in the current economic climate.

Vu Quang Tuan, head of the sales department at Thang Loi car dealership, said after the government restricted the import of new cars, many traders planned to switch to trading in used cars. However, this was no longer a viable option now, as the government has raised import taxes on used cars with large engines.


Mazda Motor Corp. will assemble its Mazda2 subcompact car in Vietnam from October as the company aims to expand in emerging markets.

The Hiroshima, Japan-based automaker plans to produce about 2,000 units of the vehicle a year at a plant owned by Vina Mazda Automobile Manufacturing Co., its local distributor, according to a statement posted on its website Tuesday.

Mazda began selling its Japan-made Mazda2, Mazda3, Mazda6, and its Thailand-made Mazda BT-50 model, in Vietnam from March this year. With the new cars that will be locally made and imported vehicles, Mazda aims to sell about 1,200 units in Vietnam this fiscal year, Yukari Hara, a company spokeswoman, said at a briefing in Tokyo.

"In the future, we aim to expand this to 10,000 units a year," she said, without giving a time frame. The company also aims to expand its dealerships to 11 stores by the end of this year from the current eight outlets. (Bloomberg)

Starting August 15, used cars with engines of 1.5 liters or more have been subject to the same tax rates as new cars of the same models. Then an additional $5,000 or $15,000 tax has been imposed on the cars, depending on their engine capacity. Earlier, used cars were only subject to a fixed tax, starting at $3,500 per car.

Tuan said the higher taxes are a severe blow for traders because they have made used cars much more expensive.

In fact, the tax has increased the prices of used cars to higher than those of new ones of the same model, he said. "Nobody wants to buy secondhand cars anymore."

Some firms have considered trading in imported secondhand cars with engines of 1.5 liters downwards, which have not been much affected by the new import taxes. However, there are only a few models of such cars, such as Daewoo Matiz, Kia Morning, or Toyota Yaris, so the customer base for these models is not large, Tuan said.

His firm plans to become an agent of some automobile joint ventures. However, like many other dealers, Tuan believed it would not be easy.

"New agents cannot compete with old ones in terms of supply and prices," Tuan said.

Dinh Xuan Tung, sales manager of car retailer Hung Viet, said his firm hopes to avoid import taxes by trading in locally used cars. However, the supply of these cars is very thin, because few people want to sell their cars and buy new ones amidst the difficult economic situation.

The government should change the policy so that car dealerships can survive, Tung urged.

He said it would be a waste of money if car dealers have to shut down after making a huge investment. Thousands of employees will lose their jobs, he added.

Viet of the Bao Viet dealership said the government, in recent years, has adjusted its car import policy too many times, hurting car traders.

"We wish that the state's policy were more stable, so that firms would feel secure in doing business," he said.

Viet said the regulations, in fact, have given monopoly power to the Vietnam Automobile Manufacturers' Association, also known as VAMA, and put consumers at a disadvantage. "Without competition in the market, consumers will have fewer choices. They will have to accept the prices set by VAMA."

He said joint ventures like Toyota, Truong Hai and Huyndai Thanh Cong are the firms which benefit most from the policy, as they hold the biggest market shares of both imported and locally made cars.

Tung said some cars have seen hikes of 5-20 percent compared to a few months ago. "The price of Toyota Corolla has increased by some $5,000 per unit to $35,500, while that of Lexus 350 has gone up by $20,000 per unit."

"And they could still go higher because supplies are dwindling," he said.

A representative from VAMA said he does not have any comments on the reaction of car dealers. The association's members strictly implement government regulations, and the new import policy does not affect their business, he told Thanh Nien.

"VAMA has not made a corrupt use of the policy to increase prices. We adjust prices only when there are changes in the exchange rates, the economy or tax policies," he said.

VAMA's sales fell over the last two months due to declining purchasing power, he said.

"In the context of economic difficulties and tightened financial policy, VAMA is expected to see more difficulties in its car sales this year," he said.

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