What’s Driving Increasing Car Imports in Vietnam?
The big increase in imports of finished automobiles, or completely built units (CBU) as they are commonly known, into Vietnam in recent years suggests the Vietnamese market’s potential far outweighs its challenges. Here’s why.
The high level of inventory of imported CBU cars along with the decrease of purchasing power because of the current global economic downturn have created a somewhat pessimistic outlook for the Vietnamese car market.
However, statistics from the General Department of Customs reveal something quite different. The proportion of CBU cars imported from ASEAN countries, primarily from Thailand and Indonesia, has been gradually increasing every year since 2014. In fact, in 2020, Vietnam overtook the Philippines to become the fourth largest auto market among ASEAN members.
This suggests that, for importers, the demand in the automobile market is a much stronger pull than the obstacles are a deterrent. Here’s how the market is developing as of the start of this year.
Vietnam’s imported car market in numbers
Although the number of imported cars is still less than those domestically produced and assembled, it has increased continuously over the past five years. Notably, the number of cars imported into Vietnam set back-to-back records in 2021 and 2022 with 160,000 and 173,467 units, respectively. Notably, Vietnam was the 40th largest car importer in the world in 2021.
In the first two months of 2023, the whole country imported 44,457 CBU cars of all kinds, with a total value of US$612.5 million. Compared to the same period in 2022, imported CBU cars increased by 325 percent in volume and 180.6 percent in value.
|Month||Units||Value (US$ Million)||Change (units)||Change (%)|
(Source: General Department of Customs)
Automobile output often increases dramatically in the first and last months of the year, coinciding with major holidays, such as the Lunar New Year. Although there were several month-on-month decreases in 2022, overall, there was still substantial growth with an average month-on-month increase of 11.9 percent.
Vietnam mainly imports three main types of vehicles: cars with 9 seats or less, trucks, and specialized cars. The majority of CBU cars imported to Vietnam are cheap passenger cars, mainly originating from Thailand and Indonesia. These two countries account for 75 percent of total Vietnam CBU car imports.
Thailand is a major manufacturer of the cars imported into Vietnam. The volume of CBU cars imported from Thailand in 2022 was 72,032 units. More recently, in February of this year, Vietnam imported 6,066 vehicles from Thailand, including 5,385 vehicles with 9 seats or less and 646 trucks.
Prominent imported car models originating in Thailand that are currently sold in Vietnam include Toyota Corolla Cross, Toyota Camry, Toyota Corolla Altis, Honda HR-V, Ford Everes, Subaru Forester, and Isuzu Mu-X.
Indonesia is emerging as one of the largest exporters to Vietnam. Although the number of imported cars is not dissimilar to Thailand, the value is relatively low compared. The average import price of Indonesia is only US$14,000 USD while Thailand is US$20,000.
Vietnam imported 72,671 cars from Indonesia in 2022. In February 2023, the number of cars with 9 seats or less originating from Indonesia decreased by 38.9 percent month-on-month.
Specialized cars, vehicles that require more training to operate than passenger cars, made in China account for most of the total number of cars of this type imported into Vietnam. They are usually imported via road across Vietnam’s northern border.
In February 2023, there were 566 specialized cars originating from China, an increase of 125 percent compared to the previous month. This accounted for 87 percent of the total number of specialized cars imported into Vietnam.
Driving forces behind demand for CBU cars in Vietnam
A growing middle class
Over the last 20 years, Vietnam’s GDP has grown at a compound annual rate of 5 percent in real terms, which is 1.7 times higher than the global average. If GDP growth remains consistent it is forecast that 36 million more people may join Vietnam’s consuming class over the next decade.
In addition, the average number of cars per 1,000 people has reached about 50. This is relatively low compared to other nations in Southeast Asia. That said, the demand for automobiles in Vietnam is forecast to explode with 800,000-900,000 cars to be added to the road each year by 2025, increasing to about 1.5-1.8 million vehicles by 2030.
In particular, the demand for mid-range cars with 9 seats or less is on the rise, among Vietnamese families. The number of vehicles with less than 9 seats is currently increasing at a pace of 20-30 percent a year, and will probably account for 70 percent of Vietnam’s car market by 2025.
Free trade agreements are also driving CBU car import growth.
For example, under the ASEAN Trade in Goods Agreement (ATIGA), the automobile import duty is 0 percent for cars imported from ASEAN countries with a localization rate of 40 percent or more. Recently, the Government also issued Decree 126/2022/ND-CP stipulating that import tax relief for CBU cars from ASEAN will continue until the end of 2027.
For cars imported from the European market, the import tax rate is currently about 70 percent. However, thanks to the EU-Vietnam Free Trade Agreement (EVFTA), it should be reduced to 0 percent by the time the agreement is fully implemented. This is similar in the United Kingdom-Vietnam FTA, too.
In addition, despite enjoying many incentives, the price of cars assembled in Vietnam is nearly twice as high compared to countries like Thailand and Indonesia. This is due to high import taxes on components, which are then passed on to end consumers.
Thus, although the price of imported cars is subject to excise tax and value-added tax and possibly special consumption tax, due to the duty relief provided by these FTAs, Vietnamese consumers can still usually get cheaper cars from abroad.
The future of the Vietnamese automobile market
The Vietnam Automobile Importers Association (VIVA) recently submitted a proposal to reduce the registration fee for new cars by 50 percent for imported cars. Although it will not reduce the selling price, it will help reduce the cost of getting a vehicle on the road, thereby stimulating consumer demand.
The Ministry of Finance has already rejected the request, but that VIVA is advocating for these changes suggests that foreign car makers are keen on taking a bigger piece of Vietnam’s car market.
It also suggests that there may be at least some will to protect local car manufacturing through non-tariff measures, taxes and registration fees being two examples.
What is best for new car market entrants will, therefore, depend on a number of factors that can be discussed in depth with the experts at Dezan Shira and Associates.
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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at firstname.lastname@example.org or visit us at www.dezshira.com
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