The latest report of the Vietnam Automobile Manufacturers Association (VAMA) showed a slight drop of 1% in auto sales last year against 2010, with some 110,900 vehicles sold by VAMA members. The downtrend beginning last year is believed by several auto firms to continue and even worsen in 2012, now that the economy will hardly escape internal and external woes unscathed while new policies make owning a new car more costly.

Sedans pull up the market

According to local automakers, given last year’s economic woes along with monetary tightening policy, high forex and interest rates, the domestic auto market should have tumbled sharply but for the strong demand for sedans. In particular, some 40,850 sedans produced by VAMA members were consumed last year, rising 22.1% year-on-year, while commercial cars witnessed a drop of 15% in sales volume with over 46,200 units sold and sales of multi-purpose vehicles (MPV) dwindled by 6% with nearly 23,000 units consumed.

Auto traders said the demand for automobiles was still high, with the drastic sales growth of personal vehicles against commercial cars regardless of market difficulties. On the other hand, analysts attributed the strong consumption of sedans to the new policies of local authorities.

Specifically, Circular 20 of the Ministry of Industry and Trade issued early last year has helped eliminate unauthorized auto importers, causing numerous sales agents to fold up their businesses or switch to other fields. Consumers were afraid of auto price spike as these businesses went bust, thus rushing to buy cars, leading to the continual growth in the sedan market segment until now.

Following Circular 20, the decision on adjusting up registration fees and license plate fees applicable to vehicles under 10 seats in HCMC and Hanoi has taken effect since this year’s beginning. Those who wanted to evade the higher registration fees and the increased license plate fees have bought cars before the effective date.

Particularly, in the final month of 2011, the total sales volume of VAMA members only reached some 10,940 units, ebbing 12% over the same period of 2010 due to the sales slump of commercial cars and MVP at 33% and 16% respectively. In the meantime, sedan consumption recorded a rise of 9%.

Anxiety over 2012

At present, local automakers are concerned that higher car registration fees and license plate fees in Hanoi and HCMC would affect the domestic auto market, which is heavily dependent on these two big cities, and accordingly leave an adverse impact on auto businesses.

Gaurav Gupta, managing director of GM Vietnam, said given the rise in registration fees, consumers must spend an additional sum to own vehicles. GM Vietnam predicted there would be a temporary decline in sales volume of the local auto industry.

Sharing this view, Akito Tachibana, general director of Toyota Motor Vietnam, said the increased fees would push up the total costs to own a car, thus dragging down the market demand.

“We will definitely reconsider the production plan for 2012,” said Tachibana.

In addition to the difficulties with registration fees, the tightened financial market makes it difficult for consumers to access banking loans to buy cars, said Gupta. Besides, the wider gap between Vietnam dong and U.S. dollar rates also has a major impact on Vietnam’s auto industry.

Meanwhile, Tachibana forecast 2012 would be a tough year for auto businesses given the Government’s target to sacrifice economic growth to curb inflation and slash public investment. He predicted the sales of VAMA members may drop 20%.

Furthermore, the excise tax on automobiles may be raised to restrict personal vehicle consumption.

Holding a more optimistic view, a representative of Ford Vietnam said the new policy on vehicle registration fees and license plate fees, though unfavorable to businesses, would not impact the demand for cars. Since auto prices in Vietnam are already high, customers will not easily cancel their purchase even when higher fees are imposed, the executive said.