Unstable policies put carmakers on shaky ground

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Investors will rethink development plans for Vietnam if current situation continues

  Visitors surround Japanese cars during the Vietnam Motorshow 2012 in Hanoi late last month. The show took place at a hard time for the local automobile market as car sales continued to crash in the first eight months, declining 38 percent over the same period last year. Photo: AFP

Vietnam's auto industry is not doing well, and no one is saying things will get better soon.

Sales are plummeting and car assemblers and manufacturers have cut back on production.

Industry insiders are uniformly blaming unstable policies, especially regarding taxes, and a weak supporting industry for their current plight.

They say policies relating to the auto industry have been changed dozens of times over the past decade. In fact, there have been instances of three or four policy changes being effected within a single year, making the market unstable and weakening customer confidence, they add.

In 2011, the Ministry of Industry and Trade issued Circular 20 to limit car imports. Under the circular, which took effect June last year, importers of cars with fewer than nine seats had to show proof that they are authorized dealers for the foreign carmakers and get the documents notarized by Vietnamese diplomatic representatives in the country of origin.

Meanwhile, the General Department of Customs proposed in August that the regulation on asking importers to show documents which prove that they are authorized dealers for the foreign carmakers be rescinded. It argued that this would increase state budget collection and reduce monopolistic situations in the auto industry.

Andreas Klingler, general director of Porsche Vietnam, said policies have been changed too often and too quickly, forcing investors to adjust their business plans frequently as well. So they have not felt secure about having long-term investment plans in the country, he said.

Echoing Klingler, Tran Tan Trung, director of Lien A International Company, the distributor for Audi in Vietnam, said: "Audi was studying a plan to open a manufacturing factory in Vietnam, but finally decided to just export products to the country. Because of frequently changing policies, it is difficult for investors to map out a long-term plan in Vietnam."

He said firms and consumers could accept high taxes and fees, but regulations regarding them should not be frequently changed.

Trung said two other barriers hindering the automobile industry's development are the shortage of qualified engineers and staff, and an ailing supporting industry.

Yoshihisa Maruta, general director of Toyota Vietnam, said carmakers expand their production and business only when the market develops. However, the development depends on polices relating to tax and fees, and these need to be stable.

Slow sales

According to the Ministry of Industry and Trade, the automobile market saw big growth in the 2006-2009 period, but this has slacked since.

Local carmakers saw sales drop in the first eight months of this year by 38 percent over the same period last year to some 65,000 units, according to the Vietnam Automobile Manufacturers' Association (VAMA).

VAMA has cut its sales target to 88,000 units this year from 140,000 projected earlier.

"Apart from the tough economic situation and limited access to finance with very high interest rates, the increase in taxes and fees for car owners in Vietnam since January 1, 2012 has negatively impacted the purchase consideration of customers," said Ford Vietnam General Director and VAMA Chairman Laurent Charpentier.

Hanoi has raised the registration fees from 12 percent to 20 percent of the value of the automobile, and the license plate fees by 10 times to VND20 million (US$950) since then. Ho Chi Minh City has also increased the registration fee from 10 percent to 15 percent.

Industry insiders say a car now has five kinds of taxes and nine different fees, including value added tax, special consumption tax and registration fees, which make spending on a car in Vietnam much higher than that in other countries. This is a major reason for slow sales in the country, they add.

Reconsidering plans

Klingler said many investors will have to reconsider their business schedule in Vietnam if the situation continues on these lines.

Do Huu Hao, chairman of the Vietnamese Society of Automotive Engineers, said: "If we don't have a good policy to encourage the use of cars, the market will not be able to develop further."

He said if government policies do not support domestic auto production, locals would buy imported vehicles, especially from 2018 onwards, when regional free-trade commitments will see import taxes on cars from other Southeast Asian countries fall to 0-5 percent from the current 83 percent.

While no investor has announced any expansion plan in the country, several have announced production and business development plans in Thailand and Indonesia, with investments of hundreds of millions of dollars in each project.

"We hope for a transparent strategy with a stable roadmap and policies for the auto industry in Vietnam," said Charpentier. "The improvement of infrastructure, labor and a comfortable investment environment is indispensable for attracting more foreign capital."

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