With a population of over 80 million Vietnam is an attractive market in the ASEAN region. Although GDP-growth rates are impressive (7.6% between 2000 and 2007), with a GDP per capita of 833 USD and an average annual income of 536 USD, Vietnam is still a poor country. It is only a small fraction of the Vietnamese population who can think of buying a car at all.
Vietnam’s automotive industry is one of the youngest in the region. Local assembling of cars started at the end of the last century and the automotive market has been open for imports of new cars on a larger scale only since 2003. Used cars to a certain age maximum are allowed for import only since 2006. Hence, Vietnam’s car penetration is one of the lowest in the world, behind all other ASEAN countries as well as India and China. Because of this recent opening, the car park in Vietnam is very young.
The car market is characterized through very high prices which developed in a phase when the Vietnamese government wanted to develop the local automotive industry through protection measures like an import licensing scheme and high customs duties on CBUs. In addition, various taxes and fees applicable when buying new cars, like the special consumption tax of 50%, increase cost substantially.
Notwithstanding the low average income and the very high car prices, the passenger car market is booming since 2007, when new registrations doubled. Both locally assembled and imported cars are in high demand. For certain locally assembled models there are waiting lists for about 10 month. We expect further growth of about 35% annually until 2010.
The Vietnamese government’s latest plans regarding import licenses, tariffs, taxes and registration fees are a major factor of uncertainty. While WTO and AFTA memberships will eventually open up the markets and lower tariffs and taxes – and the Vietnamese government initially seemed to fulfill demands earlier as expected – today all moves are aiming at closing up the market again. With more liberal regulations, the car market in Vietnam might grow much faster than our estimate of 17%.
The distribution structure for new cars is currently shifting to a more organized form OEMs with an assembling joint venture in Vietnam will organize distribution through these joint ventures. This was made possible after these foreign invested joint ventures were granted import licenses for new cars. Other OEMs without an investment in a manufacturing presence also nominate official distributors. Until today, the market for models not assembled in Vietnam was dominated by grey importers and dealers. They will have a hard standing in the future and are expected to focus on special models the official distributors are not selling in Vietnam as well as on used cars. Financing of cars is just developing, with loans being the preferred method of financing. In a market with very high prices, car financing has a high potential.
Vietnam has no own passenger car brand. There are several OEMs active in Vietnam, mostly through manufacturing joint ventures with state-owned companies. Although the market is growing strongly, it is still too small for each manufacturing operation to reach efficiency. This is one reason why prices are still very high in Vietnam. Vietnam is not used as a manufacturing hub in ASEAN or Asia in general. Other countries like Malaysia or Thailand are in a better position in this respect. Operations in Vietnam were set-up to enter the local market, since import of new cars was not allowed for several years. The Vietnamese government wants to develop the automotive industry but local assembling operations – at least with foreign investment – have failed to generate a high localization rate. One reason is the limited supplier structure in Vietnam.
In line with the size of the car park, the aftermarket is still small. However, it is growing by over 20% p.a. over the next years to 2010. Growth of the aftermarket is driven by the growth in car sales and the aging of the still very young car park. The distribution system for spare parts is just forming. There is no dominating or even larger independent player in a market, where quality is a big issue for customers who can afford and are willing to buy a car at the current price level.
In total, the car market and the aftermarket are both attractive because of high growth rates and a large potential market of over 80 million Vietnamese. However, the market is still too small to justify large scale investments just to serve the domestic market. With further opening of the local market, which will happen in line with WTO and AFTA agreements, using Vietnam as a manufacturing base for exports will be more feasible.
The major risk in Vietnam is the government’s policy with respect to the automotive industry. The Vietnamese government is torn between opening up the market so as to allow more competition and to eventually lower prices for customers and the wish to protect the local automotive industry and to limit the expansion of the car park which is leading to traffic jams due to a lack in infrastructure. Due to this lack in overall strategy, there are rather erratic jumps in tariffs and other taxes and fees levied on the import or purchase of CBUs, CDKs and parts. Hence, Long-term planning is difficult and one needs to think in scenarios.
To prepare this market report, we used primary and secondary research methods – expert interviews and consumer surveys – in particular for the market of automotive parts, which is not covered yet by any substantial statistical data – and standard analysis of secondary information available on the topic. Based on our experience and developed competencies we have built proprietary market models to forecast future market development. The report was compiled in the period from March 2008 to July 2008 and hence includes statistical data until June 2008, if available.
Key Topics Covered:
TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
1. COUNTRY BASICS
1.1. Economic Development
1.2. Regional Economic Development
1.3. Vietnam, ASEAN and AFTA
2. VIETNAMESE PASSENGER CAR MARKET
2.1. Vietnamese Car Park
2.1.1. Structure of Car Park by Age
2.1.2. Structure of Car Park by Brands and Models
2.1.3. Car Park in Regional Markets
2.2. Passenger Car Sales and Imports
2.2.1. Size of Market
2.2.2. Market Characteristics New Cars Market
2.2.3. Sales Drivers for New Cars
18.104.22.168. Economic Growth and Income Levels
22.214.171.124. Used Car Imports
126.96.36.199. Changing regulatory environment
188.8.131.52. Car Financing
184.108.40.206. Dealership Networks / Distribution Systems
220.127.116.11. Consumer preferences
3. VIETNAMESE COMPONENTS AND SPARE PARTS MARKET
3.1. The Vietnamese Automotive Industry
3.2. Car Production and Components Market
3.2.2. Components Market and Vietnamese Supplier
3.3. Vietnamese Aftermarket
3.3.1. Market Segments Aftermarket (OE, IAM, Fakes)
3.3.2. Market Size Aftermarket
3.3.3. Distribution System for Spare Part
18.104.22.168. Parts Importers and Distributors
22.214.171.124. Spare Part Shops
126.96.36.199. Service Stations
188.8.131.52. Other Supply Channels
4. OPPORTUNITIES AND RISKS
5.1. Vietnamese Provinces
5.2. Districts and Provinces
5.3. Major Vietnamese Cities
5.4. Regulations and Fees for Car Imports
5.5. Sales of Foreign Brands in Vietnam, 2005-2007
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