The Bottom Falls Out: Auto Manufacturers in Vietnam Witness a Drastic Dip in Sales and Production

## Vietnam’s Automotive Industry Faces Challenges: Can Government Incentives Provide a Boost?

According to Nikkei Asia, the estimated 144,000 vehicles rolled out from domestic assembly lines in Vietnam reflect a mere 40% capacity utilization rate for the first half of 2024. The country’s auto assembly plants have a combined design capacity of 700,000-800,000 vehicles per year.

Not only has there been a decline in production, but domestic auto sales in Vietnam for the first half of the year have also dipped by 15% compared to the same period last year.

Data from the Vietnam Automobile Manufacturers Association (VAMA) reveals that the total market consumption for the year so far stands at 134,884 vehicles, comprising 67,849 assembled cars and 67,035 imported ones.

Nikkei Asia quotes Mr. Koji Sugita, General Director of Honda Vietnam, who attributes the sluggish auto demand to the economic downturn that began in 2022. “Purchasing power among high-income earners, the primary target group for the auto market, has not fully recovered due to the impact of the real estate slump last year,” he says.

In response to the situation, carmakers and dealers have initiated promotional campaigns and price reductions. The Vietnamese government is also considering a 50% discount on registration fees for domestically assembled cars. Similar incentives were implemented in 2020, 2022, and 2023, each lasting for six months.

Opinions are divided among industry leaders regarding the potential impact of another round of registration fee discounts. Mr. Keita Nakano, General Director of Toyota Vietnam, tells Nikkei Asia that Vietnamese consumers are price-sensitive as they often make cash purchases. In contrast, Mr. Koji Sugita believes that such a policy would “borrow demand from the future” and potentially disrupt the market.

“The policy will also reduce the asset value of car owners,” he adds.

Nikkei Asia notes that Vietnamese consumers have become accustomed to these government incentives, reducing their effectiveness over time.

The publication also highlights the high cost of automobiles in Vietnam due to various taxes and fees, including a special consumption tax ranging from 35% to 150% of the vehicle’s value. According to their calculations, car prices in Vietnam are nearly double those in Thailand and Indonesia.

“This makes cars a luxury item in Vietnam,” says Mr. Koji Sugita.

Looking ahead, Nikkei Asia reports that import tariffs on automobiles from Europe and Japan are expected to decrease in the coming years, as stipulated by the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This could be a positive factor in revitalizing the Vietnamese auto market.

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