The dong's recent dip against the dollar, rising inflation and an anticipated slash in automotive tariffs have virtually choked off local car sales
A man studies a car displayed at an automobile exhibition in Ho Chi Minh City. Vietnam's car sales through October fell 4 percent from the same period last year.
A recent slide in Vietnamese car sales has been attributed to a weakening dong and an anticipated drop in the automotive import tariff.
Nguyen Ngoc Tu, director of the Hoang Tuan car dealership, said that the last two months of the year are usually his hot selling time.
According to Tu, people usually come in and purchase cars for travel during the Tet Lunar New Year festival.
This year, sales are slow. His firm has only sold 9-10 cars a month, compared to some 40-50 units last year.
Tuan guessed that the rising dong-dollar exchange rate has put his sales in a sling.
"Each car sold now costs about VND20 million (nearly US$1,000) more," Tu said.
Meanwhile, high interest rates have also hindered customers from purchasing cars, he said. Up to 80 percent buy their vehicles in installments.
"We hardly sell any cars," said a salesman at the Tan Cat Tuong. "The market has been at a standstill for over a month."
His firm, which deals mostly in luxury cars, sold 30-35 units per month, last year.
Tariff trouble ahead
The automobile market saw a significant slowdown after the Finance Ministry issued its plan to cut automobile tariffs. The ministry said it plans to cut car import taxes to 70 percent in 2011 from its current rate of over 80 percent to come in line with ASEAN commitments.
"The plan on import tax reduction has strongly affected consumer psychology," Tu from Hoang Tuan said. "People come to our showroom just to check on prices. They say they need to consider more before deciding to buy."
Car importers are struggling with the decline in sales and are suffering from losses.
Tu's firm stopped importing new inventory. Nearly 40 cars remain on the lot and he is struggling to find ways to promote sales to recoup capital.
"We only import cars under orders from customers," he said.
According to Vu Quang Tuan, who works in the business department of the Thang Loi car dealership, flagging purchasing power has made things hard for car dealers. As a result, his company has focused more on selling mid-range vehicles ($31,000-37,000) and shifted away from high-end cars.
The final blow
Tu said the market is expected to brighten by the end of this year, but it could be too late for some. He estimates that the downturn could bring some small car traders to the verge of bankruptcy.
Some local car producers and assemblers also said that many firms could face the risk of closing down due to next year's tariff reduction.
Nguyen Van Thanh, vice chairman of the Vietnam Automobile Transportation Association, has recommended that the tariff reduction be sped up.
"It is necessary to accelerate the car import tax reduction, so that consumers can buy cars for reasonable prices," he said.
Local car manufacturers have relied on the state's preferential policies and have failed to incorporate a significant ratio of locally-made components into their vehicles. Thus, he said, their cars are very expensive and will not be able to compete with imports once the new tariff cuts take effect.
"Local companies must improve their product quality, and economize their production process, if they want to compete in the context of international integration," Thanh noted.
CAR SALES DOWN FOR 4TH MONTH
|Vietnam's car sales fell 11 percent in October compared to last year, according to the Vietnam Automobile Manufacturers' Association.
Seventeen members of the industry group sold a total of 10,421 foreign and domestic vehicles last month.
According to the data released last week, cumulative sales through October reached 88,600 units, down 4 percent from the same period last year.
October was the fourth consecutive month of decline compared to sales in 2009. On a month-on-month analysis, October's sales increased by 14 percent.
Vietnam spent $2.3 billion on importing cars and spare parts in the first ten months of 2010 up 1.8 percent over the same period last year. Of that money, a total of $759 million was spent on importing 42,000 cars, according to the General Statistics Office.