Vietnam car dealers let down by new import rule

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A new rule, which requires car importers to show authorization documents provided by foreign manufacturers, has caught auto dealerships by surprise.

Some 50 car dealerships met in Hanoi Tuesday to sign a petition opposing the new regulation. The petition, which asks for an amendment of the rule, will be submitted to Prime Minister Nguyen Tan Dung, Minister of Industry and Trade Vu Huy Hoang, and Minister of Justice Ho Hung Cuong.

The firms said the regulation might force car dealerships across the country to shut down.

The Ministry of Industry and Trade announced the new rule, which comes into effect on June 26, in a move to reduce Vietnam's trade deficit.

According to the rule, car importers have to submit documents, verified by Vietnamese diplomatic representatives, to show that foreign auto companies have authorized them to sell cars in Vietnam. In addition, car dealerships must have customer service facilities in Vietnam. The rule only applies to cars with fewer than nine seats.

Nguyen Ngoc Tu, director of the Hoang Tuan car dealership, said, "Dealers will never be able to get the required documents. It's like a ban on car imports."

Foreign auto companies which have joint ventures in Vietnam will not give authorization to importers, Tu explained. While there are 5,000 car dealerships, there are only about 10 automobile joint ventures in the country.

"An auto dealership requires a huge investment, and the losses will be equally colossal when the dealers down their shutters. Thousands of employees will also become unemployed," he added.

Dinh Xuan Tung, sales manager of car retailer Hung Viet, said the new rule will eliminate the business of car import, as only auto joint-ventures will be able to get authorization documents. "With this, the entire auto business will be handed over to the Vietnam Automobile Manufacturers' Association (VAMA)."

Most dealers in Vietnam import cars directly from authorized dealers of foreign carmakers abroad. They only have to show purchase contracts, and quality and registration certificates, to bring the cars into the country, Tung said.

Tu said the new regulation, in fact, would give monopoly to 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."

Nguyen Dinh Quang, owner of the Hoa Binh dealership, said once the new rule comes into effect, a shortage of cars in the market will send car prices skyrocketing.

Shifting business

Car dealerships will have to change their business strategy if they want to stay afloat.

Like many other car dealers, the owner of an auto outlet on Hanoi's Lang Ha Street said his firm would try to import cars not produced in Vietnam, or second-hand ones.

Tu of Hoang Tuan dealership said second-hand cars' registrations are very complicated and will be a headache for traders. He also expressed his skepticism in trading in new cars which aren't familiar to Vietnamese consumers and don't have a big market.

"Volkswagen, Chrysler, Audi, BMW and Porsche are very expensive. Only a few of these cars are sold in the country each month," he said.

Tu's two outlets in Hanoi sell mostly Toyota, Honda and Huyndai cars imported from the US, South Korea and the Middle East.

Tung of Hung Viet said firms shifting to luxury car imports would need more capital while profits would be slimmer. "Cars in the range of VND1-2 billion (US$50,000-100,000) are more popular than those with higher prices."

Tung plans to start a second-hand car sales business. But he knows trading in second-hand cars would require skill in assessing quality and negotiating prices. Until now, most employees in auto dealerships have only dealt in brand new cars and don't have the necessary experience, Tung said.

He said prices of some imported cars might go up by as much as $4,000-5,000 per unit due to supply shortage.

In fact, some dealerships are holding back the cars they have already imported into the country, in the hopes of selling them at higher prices after June 26, he said.

"Some cars have seen hikes of 2-4 percent compared to a month ago. Toyota Camry, imported from the US, is now more expensive by $1,800 per unit, while Toyota Corrola, imported from Taiwan, has been sold out despite a price hike of $1,500-1,600 per unit," he said.

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