2013 Vietnam Autos Q1 Market Report RnR Market Research

With new vehicle sales falling almost 21% year-on-year (y-o-y), to 48,780 units, between January and August, according to estimates from the Vietnam Automobile Manufacturers’ Association, our forecast of a more than a 26% y-o-y contraction in 2012 looks firmly on the cards.

Since the purchase of new vehicles depends on affordability as well as the ability to get loans, adverse conditions in both of these areas have placed a drag on vehicle sales. A sharp increase in vehicle registration taxes imposed by the government on January 1 2012 stifled demand for new vehicles. Interest rates also remain high at 10.00% and access to consumer credit remains tight, which has significantly curbed consumers’ ability to purchase vehicles on credit.

However, BMI expect things to improve in the medium-to-long term on the back of impending banking sector reforms, improving macroeconomic outlook and potential benefits to Vietnam from the formation of ASEAN Economic Community (AEC) by 2015. With the State Bank of Vietnam (SBV) showing its intention to support economic growth through its rate cuts recently, our Country Risk team has revised its forecast for 2013 real GDP growth to 7.0% from 6.5% previously. As inflation cools and economic growth recovers, we expect banks to pass on further interest rate cuts to the consumer. As such, we forecast average annual vehicle sales growth of 5% y-o-y over the 2013-16 period.

Despite this outlook, we warn that a lot needs to be done in terms of policy changes to make Vietnam an attractive market for autos-related investment in the Asia-Pacific region. Although the government has tried to increase domestic production in the industry, in particular by raising import tariffs on vehicles, there has been little in the way of rewards for companies which have chosen to invest. This is reflected in the ‘rewards’ section of BMI’s industry risk/reward ratings for the autos sector in Asia, where Vietnam scores far below its neighbours in terms of the industry rewards on offer.

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As such, we maintain our pessimistic outlook for the production segment and forecast a 15% decrease in output in 2012. For the remainder of the forecast period to 2016, we restrict our average growth forecast to only 7% y-o-y on the back of a March 2012 report produced by Vietnam’s Chamber of Commerce and Industry (CCI) highlighting structural weaknesses in the country’s auto sector and the ongoing threats to the demand side of the industry.

However, this is based on foreign manufacturers such as Hyundai Motor and Kia Motors maintaining their current investment plans to increase auto and auto parts production within the Chu Lai Economic Zone towards the end of our forecast period. Should such foreign manufacturers choose to reconsider their Vietnamese investments in the light of recent tax and registration fee hikes then there may well be downside risks to our current 2013-16 production forecasts moving forward.

Report Details:

Published: Oct 2012

No. of pages:50

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