The Hanoi-based Japan Business Association in Vietnam (JBAV) earlier this month warned that rising automobile imports, especially after 2018, when the import tax will be exempted, will cause a serious deficit in the international balance of payments for the Southeast Asian country.
"If development policies for the local automotive industry are not efficient, the international balance of payments deficit will deepen and hinder long-term economic growth of Vietnam," JBAV said in a recommendation released in the framework of the midterm Vietnam Business Forum 2015 that took place in Hanoi on June 9.
Specifically, the organization stated that imported cars, or completely built units (CBUs), from Thailand and Indonesia, the two countries with the fastest-growing automotive industries in the region, are increasingly weighing on the fate of domestically assembled cars, or completely knocked down cars (CKDs), due to price advantages after 2018.
According to the ASEAN Trade in Goods Agreement (ATIGA), duties on CBUs from Southeast Asian countries will be reduced gradually before being fully exempted by 2018.
As a result, just over two years after Vietnam fully integrates into the ASEAN Economic Community (AEC) by the end of 2015, the tax rates of CBUs from ASEAN will drop to zero, which will sharply pull down the retail price of CBUs compared to the price of CKDs.
Meanwhile, JBAV also commented that the automobile industry in Vietnam is still small and has ailing supporting industries, so maintaining the sector will be difficult.
If Vietnam cannot continue to keep the automotive industry, the supporting industries for it will hardly exist.
Though Vietnamese Prime Minister Nguyen Tan Dung gave permission for a national plan to develop the automotive industry in July last year, no specific guidelines have been issued to implement the strategy.
This is pushing auto businesses into a difficult situation in establishing their production plan after 2018, according to JBAV.
Also related to this issue, the American Chamber of Commerce in Vietnam (AmCham) said the auto industry lacks a clear and detailed roadmap, which has undermined the confidence of investors in whether to choose Vietnam as a leading production base in the Southeast Asian region or not.
In fact, although the tax rate for ASEAN-made CBUs under ATIGA and others from outside the ASEAN region is only beginning to go down slowly, the growth rate of CBUs is surging.
According to statistics, the total volume of imported CBUs in the country reached 72,000 units last year with an import value of US$1.57 billion, the highest rates ever. Compared with 2013, total CBU imports rose 103.8 percent in volume and 117.3 percent in value in 2014.
Vietnam is estimated to have imported 45,000 CBUs worth over $1.2 billion during the first five months of 2015, according to the General Statistics Office, a rise of 125.3 percent and 185.7 percent in volume and value compared to the same period last year.
Singaporean newspaper The Straits Times earlier this month reported that automobile sales in Vietnam surged 37.6 percent in 2014, and are forecast to soar 19.9 percent this year, citing its source specializing in the automotive industry in Southeast Asia.
The need for luxury cars in Vietnam, as well as the Philippines, is very large, The Straits Times said. In Vietnam, demand for premium brands is quickening in pace.
While Mercedes and BMW dominated Vietnam’s luxury car market a few years ago, they are now competing with more international rivals like Rolls-Royce, Porsche, Audi, Lexus, Infiniti and even Lamborghini after those automakers set up official dealers in Hanoi and Ho Chi Minh City, the two biggest cities in Vietnam, the Singaporean newspaper reported.