Morning commuters are reflected in the window of a scooter shop in the old quarter of Hanoi. Two-wheels are highly popular in Vietnam.
Optimistic about the growth of Vietnam's motorbike market, foreign manufacturers like Honda, Piaggio and Yamaha are continuing their expansion here amid an otherwise slow economy.
However, the expansions could result in a supply surplus and more pressure on local producers, who are far less competitive than their foreign counterparts, which boast more capital, established brands, and higher-quality products.
Tetsuya Kawahara, assistant director of sales at Honda Vietnam, said the company completed its second factory capacity increase by 500,000 units per year in July, raising its total annual production output to two million units. The company has also decided to invest US$120 million in its third factory in Ha Nam Province, aiming to increase its total output to 2.5 million units each year when the factory officially opens late next year.
The company sold over 1.3 million motorbikes in Vietnam in the first eight months of this year, and is expected to reach sales of two million units for the whole year.
Cub models, including Wave series, which go for VND17-30 million ($815-1,430) per unit, are the most popular because they are inexpensive, reliable, easy and cheap to fix, and get great gas mileage, according to Tetsuya.
He said the Air Blade F1 and the Lead, priced at VND35-40 million each, are the two best selling models in the higher-performance category.
Yamaha Vietnam, the second biggest producer in the country, plans to invest some $50 million in factory expansion, aiming to double its total capacity to 1.5 million units each year.
Piaggio Vietnam, after two years of operations here, has also invested in building its second factory, raising its total annual capacity to 300,000 units from the current 100,000.
Vietnam has a highly potential motorbike market, as it now ranks as the fourth largest in the world after China, India and Indonesia in terms of motorbike consumption, which is six times larger than that in Italy and triple that of Europe as a whole, said Costantino Sambuy, general director of Piaggio Vietnam.
Due to the massive demand, the Southeast Asian nation is the first market that the Italian group aims to tap as part of its Asia development plan. It has moved its Asia-Pacific region headquarters from Singapore to Vietnam.
Local residents purchase some three million motorbikes each year, compared with less than 100,000 bought by Singaporeans, Sambuy said.
Honda has recently developed the Air Blade F1, a model just for the Vietnamese market, based on careful market research of the standard Vietnamese consumer.
Taiwanese producer SYM has also invested $15 million in research and development, aiming to design models for the Vietnamese.
Motorbike companies have focused on producing mid-grade scooters over the past few years as VND30-60 million per unit is the Vietnamese consumer's favored price range.
Generally, scooters are thought of as fully-automatic-transmission luxury motorbikes, while the term motorbike usually connotes semi-automatic or manual transmission bikes.
According to an industry insider who requested anonymity, motorbike producers should continue to tap the segment as the market for scooters is rapidly expanding. Scooters made up 35 percent of total motorbikes sold in the country in 2010, up from only 17 percent in 2007. The trend is expected to continue, he said.
But many foreign producers here are not only concerned with the Vietnamese market; they are focusing on boosting exports to other Asian countries.
Piaggio Vietnam has established a research and development center to design models suitable for Asian customers, as the company plans to boost exports of its made-in-Vietnam products to Thailand, South Korea, Malaysia and Indonesia.
Meanwhile, Honda Vietnam also plans to export parts to markets such as Laos, Cambodia, the Phillipines, and Pakistan.
"We currently do not meet any difficulty from competition in other countries," said Tetsuya.
Local firms in the doldrums
The combined annual capacity of all motorbike producers in Vietnam is estimated to reach some five million units by late 2012, when the new Honda Vietnam, Yamaha Vietnam and Piaggio Vietnam factories open.
The figure is expected to far outpace the average consumption of some three million motorbikes each year, setting the stage for fierce competition.
However, foreign firms are not worried, nor are they too concerned about a government plan to limit motorbikes in big cities.
"Vietnam's motorbike market will continue to grow for several years. The demand for high-end models will increase in big cities, while sales of motorcycles in general will go up in rural areas, resulting from higher incomes," Tetsuya from Honda Vietnam said.
When the market becomes saturated with some 30 million new motorbikes driving on Vietnamese roads a decade from now, local producers, who do not have their own designs, brands, or high quality products, will be the ones that suffer.
According to the Vietnam Automobile, Motorbike and Bicycle Association, less than 10 out of 56 registered local motorbike producers are actually producing bikes, with a total output of some 57,000 units each year. Between 1999 and 2001, they held up to 80 percent of the market.
Nguyen Van Loi, owner of a motorbike shop on Hanoi's Hue Street, said his shop no longer sells motorbikes produced by local firms because of low sales.
"The price of a motorbike produced by local firms is some VND14 million, not much lower than that of a Wave from Honda Vietnam," he said. "Foreign models are much nicer. Very few people want to buy local motorbikes."
The shop now mostly sells Honda, Yamaha and Piaggio scooters.
Loi said sales have increased some 10 percent recent months, but his profits are down, due to competition with other shops.