Race to compete
It was a sunny day at the Honda dealerships in Hanoi’s Tay Ho district, and Mr. Nguyen Tuan Anh, a 29-year-old project manager at E-Game, was looking for a sedan for VND500 million to VND600 million ($22,000 to $24,400).
“I’m wavering between a Honda City and an import from Thailand, because of the competitive price under ATIGA.”
ATIGA, or the ASEAN Trade in Goods Agreement, is the first comprehensive agreement to adjust all ASEAN trade in goods and was built on the basis of commitments agreed to in CEPT / AFTA and relevant agreements and protocols.
It regulates a tariff reduction schedule for vehicles originating from ASEAN, which fell from 40 per cent to 30 per cent in January and will be 0 per cent in 2018.
Because of tariff reductions, the number of completely-built-unit (CBU) vehicles from ASEAN increased significantly in January.
Vehicles of less than nine seats increased 233 per cent compared to January last year, according to the General Department of Vietnam Customs and were equal to 45 per cent of import volumes in 2016 as a whole.
The figure totaled 3,048 units, or 62.8 per cent of imports.
Within ASEAN, only Thailand and Indonesia export vehicles of less than nine seats to Vietnam.
Those from Thailand totaled 1,585 units in January worth $31 million, up 55 per cent and 209 per cent, respectively, year-on-year.
There were 1,823 units worth $35 million imported from Indonesia, compared to just one vehicle imported in January last year, worth $10,000.
“When the 0 per cent tariff is applied on motor vehicles, within ASEAN we are most concerned about those from Thailand, because many have localization rates from 70 per cent to over 90 per cent,” said industry expert Dr. Ngo Tri Long.
In the first month of 2017, ASEAN remained the largest source of all types of automobiles imported into Vietnam.
Thailand was the largest in the bloc, with 2,605 units, followed by Indonesia with 1,823 units and India with more than 1,000 units.
Most customers buying CBU vehicles from ASEAN say that prices and services are attractive.
The price of vehicles imported from India are the lowest, averaging just $3,708 per unit, while vehicles assembled in Vietnam such as the Toyota Vios 1.5E is VND564 million ($24,775), which is much higher than any CBU vehicle from ASEAN.
The Kia Morning, the Hyundai i10, and the Chevrolet Spark, all CBUs, cost from VND350 million to VND480 million ($15,375 to $21,085).
Given the reductions under ATIGA, in the second month of the year Toyota Vietnam announced new prices for its two types of Yaris, both of which are CBUs imported from Thailand.
The Yaris G now sells for VND642 million ($28,190) and Yaris E for VND592 million ($25,995), down VND47 million ($2,060) and VND44 million ($1,935), respectively.
When the tariff rate becomes zero their prices will fall by an additional VND130 million ($5,700) to VND140 million ($6,150).
Vietnamese automakers need to adopt reasonable strategies to cut manufacturing costs and attract customers if they hope to compete with CBU vehicles from ASEAN, according to the Vietnam Automobile Manufacturers Association (VAMA).
However, ATIGA also regulates that automotive components are also subject to tariff reductions, so local makers are in a position to compete with CBU imports from the region, Mr. Yoshihisa Maruta, President of VAMA, believes.
“This is a good opportunity for automakers that assemble in Vietnam to introduce new products and improve sales in 2018,” he said.
Toyota Motor Vietnam (TMV) said that completely-knocked-down (CKD) vehicles in Vietnam will meet difficulties when tariffs fall under ATIGA because the price of CBU vehicles from ASEAN are attractive due to low manufacturing costs in Thailand and Indonesia.
It still believes, however, in the potential of the CKD market in Vietnam in the time to come.
Though having to cope with major competition next year when tariffs fall to zero, TMV has adopted strategies to overcome the difficulties and maintain its CKD activities in Vietnam.
Mr. Toru Kinoshita, General Director of TMV, said that measures for CKD assemblers in Vietnam to compete with CBUs from ASEAN include enhancing the localization rate, which would permit lower prices for CKDs, and focusing on key CKD models.
TMV manufactures automobile components in-house and also has arrangements with 29 suppliers for 300 components, which helps it offer CKD vehicles at a reasonable price.
Automobile imports from asean
Source: General Department of Customs
Mr. Minoru Kato, General Director of Honda Vietnam, said that the 0 per cent CBU import tariffs will be a major challenge for domestic automakers, including Honda Vietnam, when it’s introduced next year.
“They will have to adjust their business strategy to maintain production,” he believes.
Preparing strategies to compete in the market, especially with CBU vehicles from ASEAN, makers in Vietnam have cut their prices and presented gifts to customers.
The first to introduce discounts was Truong Hai Corporation, which General Director Bui Kim Kha said improved sales but at a lower profit per vehicle.
“When production increases, the more the company has had to cut prices,” he explained.
“Falling prices result in rising sales, boosting production. This creates a cycle, allowing us to compete.”
Other brands with small market share, such as Chevrolet, Suzuki, Mitsubishi, and Nissan, also offer discounts or provide insurance, accessories, or cash gifts.
Opposite to the accepted wisdom that CBU imports from ASEAN will have a negative effect on Vietnamese automakers, many believe that tariff reductions by themselves will not have a significant effect because imports are still subject to other taxes.
Moreover, vehicles assembled by Toyota, Ford, Honda, and GM are subject to component tariffs of only 15-25 per cent, significantly lower than the CBU tariff.
Therefore, local automakers should be able to compete with CBU vehicles from ASEAN if they have adopted the right strategy.
VN Economic Times