Vietnam automobile market and support solutions

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Reporting to the National Assembly for considering VAT reduction in the second half of 2024Reporting to the National Assembly for considering VAT reduction in the second half of 2024
Customs News to hold workshop with theme “what are solutions to develop Vietnam’s automobile industry under FTA”Customs News to hold workshop with theme “what are solutions to develop Vietnam’s automobile industry under FTA”
Vietnam automobile market and support solutions

The production and business activities of auto traders still face difficulties because the market has not yet fully recovered after the pandemic. Illustrative photo: Internet

Difficult consumption and high inventory

After hitting 500,000 cars in 2022, the Vietnamese auto market plunged in 2023. According to members of the Vietnam Automobile Manufacturers Association (VAMA) in 2023 alone, the number of cars sold reached 301,989 cars, down 25% compared to the previous year. Adding 67,450 cars from TC Motor in 2023, Vietnam’s auto market consumption was estimated to reach about 370,000 cars.

In 2024, the auto market still declienes despite businesses’ discount and promotional programs to stimulate market demand.

The sales reports from VAMA and Thanh Cong Group show that in January, sales of most firms decreased from 45% to 76%. The total sales of VAMA member units only reached 19,243 cars, down 50% compared to the previous months. Ofwhich, the number of sold domestically assembled cars dropped 59% or 9,783 cars, while imported CBU cars fell by 36% (or 9,460 cars).

In the following months, car consumption on the market is still in a downward trend. In the first four months of 2024, VAMA members sold 82,515 vehicles, down 11% compared to 2023. Of which, passenger cars, commercial cars, specialized cars dropped 14%, 3% and 28%, respectively.

According to TC Group’s report, the number of Hyndai cars sold in April reached 4,276 cars, decreasing by 4,542 cars month-on-month and 4,592 cars compared to the same period of the previous year. In the first four months of the year, Hyundai car sales reached 14,420 vehicles, a sharp decrease compared to 19,328 vehicles in the first 4 months of 2023.

It is estimated that about over 70,000 vehicles of all types have been stocked, mainly cars manufactured in 2023.

According to the Ministry of Finance, the operation of auto traders still faces difficulties because the market has not yet fully recovered after Covid-19 pandemic, economic recession, which has a serious impact on automobile manufacturing and assembly enterprises and the entire economy. Notably, increasing inflationary pressures, exchange rates, and interest rates… affect consumer sentiment, leading to a tendency to tighten spending on high-value products.

Supporting the market

Recently, automobile manufacturing and assembling enterprises have offered many incentive and support programs to encourage consumers to buy cars. If only relying on resources and stimulus solutions it will not be enough to create the momentum to help the auto market resume stable growth amid the complex and unstable fluctuations of the world economy.

In fact, to encourage the development of the automobile industry as well as effectively implement commitments in Free Trade Agreements (FTAs) of which Vietnam is a member, the Government has issued many preferential policies on taxes, fees and charges for the automobile industry and automobile supporting industry, including preferential import tax policies, special consumption tax incentive policy, registration fee and other preferential policies.

From 2022 until now, the Government has reduced registration fee rate by 50% for domestically produced and assembled cars three times (stipulated in Decree No. 70/2020/ND-CP takes effect from June 28, 2020 to December 31, 2020; Decree No. 103/2021/ND-CP takes effect from December 1, 2021 to May 31, 2022); Decree No. 41/2023/ND-CP takes effect from July 1, 2023 to December 31, 2023).

The 50% reduction in registration fee rate for domestically produced and assembled cars has contributed to financial support for people and businesses through directly reducing costs when registering car ownership, thereby stimulating demand, encouraging people and businesses to purchase domestically produced and assembled cars to serve consumer and production and business needs, and supporting manufacturers and distributors to sell car inventory.

At the same time, promote domestic automobile makers to promote production and assembly of new vehicles to provide to the market, improve the competitiveness of domestically produced and assembled automobiles to meet domestic market demand, aiming to export to the ASEAN region.

Difficult problem

It can be seen that every time the market faces difficulties, thanks to the support of preferential policies, car consumption improves. Thereforce, this solution always seems to be “looked forward’’ by businesses.

However, experts said that this is only an “emergency” solution at particularly difficult times, so it is necessary to consider long-term solutions so that the auto industry can quickly have strong and stable development.

According to the Ministry of Industry and Trade, thanks to timely policies from the Government and efforts from businesses, the auto industry has achieved certain results. However, the fact shows that the industry has not achieved many set goals and need to overcome obstalces. For example, the localization rate of cars with less than 9 seats has only reached an average of 12-20% (far below the target of 30-40% in 2020); the export rate has only reached 1,000 vehicles (the target of 5,000 vehicles for 2020).

The Ministry of Finance said that the implemention of preferential support solutions from tax and fee policies also needs to consider many factors. For example, the application of 50% exemption and reduction of registration fee will reduce the state revenue.

From December 2021 to the end of May 2022, the Government has reduced by 50% the registration fee for domestically produced and assembled cars. This support helps increase the consumption, (the number of domestically produced and assembled cars registered in December 2021 was 103,722 vehicles, an increase of 2.67 times compared to November 2021; the number of domestically produced and assembled cars registered in the first 5 months of 2022 was 294,455 vehicles, an increase of 1.2 to 2 times compared to the same months in 2021), but it also has an impact on reducing state revenue from registration fee equivalent to VND8,727 billion.

Besides, some opinions said that this policy may not fully comply with the provisions of the National Treatment Principle within the framework of the World Trade Organization (WTO) and FTAs. Vietnam is currently a member of the WTO and has signed many bilateral and multilateral FTAs, in which it has committed to implementing the of National Treatment Principle in trade and investment. Accordingly, currently tax, fee and charge policies in legal documents are applied uniformly between domestically produced goods and imported goods.

Vietnam has signed 17 FTAs and will reduce tariffs (including import taxes on cars) under the committed roadmap. Accordingly, the import tax on cars from countries that have signed FTAs with Vietnam will be strongly reduced and aimed at 0%.

To compete with imported CBU cars (which are subject to 0% import tax), the domestic car production and assembly needs to be developed stably instead of depending on temporary relief solutions.

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