New fees slam the brakes on car sales

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Cars are displayed at a dealership in Hanoi. Auto sales dropped in the first quarter by 37 percent to 17,891 units, the lowest since 2007, according to the Vietnam Automobile Manufacturers Association.

Discounts and freebies have failed to spur auto demand following a slew of new fees that are expected to come into effect soon.

Carmakers saw sales drop in the first quarter by 37 percent to 17,891 units, the lowest since 2007, according to the Vietnam Automobile Manufacturers Association.

Imported and second-hand cars have been finding few takers too.

Showrooms on Hanoi's Tran Khat Chan, Nguyen Van Cu and Lang Ha streets are filled with cars from BMWs to popular Fords but few customers wander in. Many showrooms have closed due to poor sales.

Seeking to reduce traffic jams in major cities, authorities have decided to slap several fees on personal vehicles to limit their use, worsening, according to dealers, what was already a bad market.

The Ministry of Transport has proposed an increase of 5 percent in annual "restriction" fees to VND20-50 million (US$951-2,300).

It also proposed that with the exception of public transport vehicles, all cars should pay VND30,000-50,000 ($1.40-2.40) to enter downtown areas during rush hour.

Last month the government approved the ministry's proposal to impose a road maintenance fee on car owners starting June 1, though the amount has not been specified. The ministry has recommended VND180,000-1.4 million ($8.6-67) a month.

On January 1 Hanoi raised the registration fee from 12 percent to 20 percent of the value of the automobile, and the license plate fee by 10 times to VND20 million.

Ho Chi Minh City raised the registration fee from 10 percent to 15 percent.

Rush to sell

Nguyen Van Thiep, general director of Phuc Lam Auto, said: "The fee hikes have dealt a severe blow to all car dealers. Now, we only get customers who want to sell cars; nobody wants to buy."

So far this year his dealership has only managed to sell a few low-end cars priced below VND500 million, and not a single one costing more than that, he said.

"The situation has never been this bad. With the low sales, we don't make enough to pay the rent and salaries, let alone profits."

His firm, like many others that used to trade new imported cars, was hit hard by a regulation last June that required importers of cars with fewer than nine seats to show proof that they are authorized dealers of foreign carmakers. Unable to do so, they have shifted to trading used cars.

"In the current situation, we have no way to do business," Thiep said. His firm has laid off nearly half its staff in the past several months.

A representative of a car showroom on Hanoi's Nguyen Van Cu Street said his firm sells just one or two units a month, down from 20-30 in the past, though prices have fallen.

A used Toyota Yaris, which used to cost VND600 million a few months ago, now goes for VND560 million, he said.

Some car assemblers have tried to lure customers by offering discounts or gifts. Truong Hai company, which assembles vehicles including the South Korean Kia, is offering discounts of $700-4,900 on Carens and Sorento models.

But the fees have put paid to their hopes.

Tran Duc Kien, the manager of a restaurant in Hanoi, said: "I no longer dream of owning a car. With the fees and taxes, I would have to pay four times the original price of an imported vehicle."

The recent gasoline price hikes will only make things worse, according to industry insiders. Last week the retail price of A92 gasoline increased by VND900 per liter to VND23,800, the second hike this year. The first came in March when the price was hiked by a whopping VND2,100.

Honda, Toyota, and Ford said they have no plans to expand production in Vietnam and have increased their investment in other Southeast Asian markets, like Thailand and Indonesia.

Members of the Vietnam Automobile Manufacturers Association are expected to cut output by 20 percent this year.

Vietnam is expected to have 28 car owners per 1,000 people by 2015 and 88 by 2025, up from the current 18, according to the Ministry of Industry and Trade.

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