Increasing Pressures on The Vietnamese Car Market

According to the mechanism of the Free Trade Agreement Vietnam signed with the European Union (EU), Vietnam will eliminate import tax on cars from Germany and France starting from August 2020 and by the end of 2030, the completely abolishing 67-70.9% of the car import tax rate.

According to the guidance of Decree No. 111/2020 / ND-CP recently issued by the Government on import and export tax exemption for goods under EVFTA in the period of 2020-2022, the import tax rate for cars from the EU, mainly Germany, France, Italy, Sweden … to Vietnam will decrease by an average of 6.8% to 7.4% / year (depending on capacity).

With a roadmap of 6.8 – 7.4% / year reduction, EU cars to Vietnam will take 9-10 years to eliminate tax. In theory, the price of imported cars such as Audi, Peugeot, Renault, Lexus, Volvo of Germany, France, Italy, Sweden or Japan, Mexico, Australia to Vietnam can be felt by consumers. year 2025 onwards.

What does Vietnamese car company calculate before the “trend” of tax reduction and price reduction of foreign cars? – Photo 1.
Many German, French, and Japanese car models will have the advantage of reducing taxes, fees and prices in Vietnam in just a short time.

Along with EVFTA, in 2019, Vietnam also signed with partners the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the tax rate for cars imported from CPTPP countries is currently applied 70% of the same Like the WTO, in the short term, Vietnam will cut taxes on average from 4 to 6 percent per year.

According to the Government’s Decree 57/2019 on preferential import tariffs in 2019-2022, the import tax rate for CBU cars with less than 9 seats from Mexico will drop to the lowest of 56% by 2022.

Meanwhile, the remaining four countries, Japan, Australia, Canada, and Singapore, will have faster tax reductions for high cylinder capacity vehicles over 2,500 cc or more. The current tax rate of 52% for vehicles over 3,000cc will be reduced to 46.2% by 2022.

Vehicles with capacities from 1,500cc to 2,000cc are reduced to 56% tax rate like Mexican cars; vehicles with a capacity of 2,000 cc to 2,500cc will be reduced to 50.9% tax by 2022.

In the long term, Vietnam commits to cut tariffs, open car imports from partner countries such as Japan, Canada from 7 onwards (since the CPTPP is officially signed).

For other partners, the tax rate will be generally applied according to car volume, for example, for cars with less than 9 seats with a high cylinder capacity of over 3,000 cc, Vietnam will eliminate import tax from the 10th year. (ie, 2029) and 13th year for lower cylinder models.

Thus, it can be said that from 2026 to 2032 (depending on the partner), car import tax from some CPTPP countries into Vietnam will be 0%.

Car prices from Germany, France and Japan to Vietnam … have decreased

Since the two new generation FTAs ​​were implemented CPTPP (early 2019) and EVFTA (early June 2020), many types of cars imported from countries in the Agreements on Vietnam have decreased significantly.

Specifically, according to statistics of the General Department of Customs, by the end of November 2020, the average price of cars imported from Germany to Vietnam decreased from 1.4 billion VND / unit, to 1.2 billion VND / unit, down nearly 200 million VND / unit. Similarly, French imported cars also decreased from an average of 2.5 billion VND / unit in 2019 to only 2.1 billion VND / unit, a decrease of 400 million VND / unit. Cars imported from Japan, the country in the CPTPP from 1.2 billion VND / unit, down to only billion VND / unit.

What does Vietnamese car company calculate before the “trend” of tax reduction and price reduction of foreign cars?
The domestic auto industry and auto enterprises will be placed on a flat playing field, competing intolerably with foreign cars on their own yard.

According to some car enterprises and experts, the reduction of car prices from the tax reduction is likely to happen from 2021 onwards, the level will gradually increase in the following years due to the large reduction of tariffs.

Some imported car manufacturers without official and exclusive distributors will increase their presence in Vietnam, meanwhile, companies that have already booked joint ventures will limit “confrontation” on prices at the beginning. The biggest pressure, the most stressful, is still for automakers with 100% domestic brands or with very large assembly lines such as Thaco, Thanh Cong …

In order to maintain market share, compete with imported cars that have dominant brand name and are being taxed, car manufacturers in Vietnam will have to stand on their own feet: Cut costs, take over market and consumers, especially to reduce car prices, improve quality to create a competitive advantage.

The Vietnamese car market has many factors that help foreign cars succeed, that is, the basic car price is very high compared to the actual income of the majority of people in need. While the number of vehicles per person is low, there is great room for foreign carmakers to exploit.

The second is that cars with under 9 seats in Vietnam are fragmented, segmented too fragmented, the market of more than 400,000 cars / year, but there is a diverse development of all models such as hatchback, sedan, SUV , Crossover, CUV, MPV … The sales rate of its car models / models is still low, so domestic assemblers bear high costs and are difficult to profit. Meanwhile, this is an advantage for imported vehicles.

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