Bumpy road ahead for automakers

Automakers, car importers and experts have forecasted a bumpy road ahead in 2009 for the automobile industry, whose sales have fallen sharply in the ending months of 2008, and urged the Government to come to their rescue.

This year will see the situation further deteriorating due to the fallout from the global economic crisis as well as new policies in the country that limit auto consumption, they said in a recent petition submitted to authorities.

The Vietnam Automobile Manufacturers Association, or VAMA, reported the average sale in the last four months decreased by half in comparison with that in the first eight months as the ownership registration tax doubled from 5% to 10%, coupled with the economic crisis. The situation affected other auto importers altogether.

Gan Kok Seng, deputy general director of Honda Vietnam, forecast the auto market this year would shrink by at least 30% compared to last year due to the economic crisis and an increase in automobile prices due to taxes.

As of January 1, 2009, the ownership registration tax in Hanoi will be 12% instead of 10% last year, while HCMC is planning to impose a registration tax rate of 15% this year.

To make matters worse for automakers and buyers alike, the higher special consumption tax will be effective as of April 1, 2009. Under this tax law, vehicles of six to nine seats will no longer enjoy low tax rate as before, while the impact on smaller vehicles will be light.

Analysts estimated that the six- to nine-seat vehicles, with engine capacity under 2,000cc, will see prices increase by 12% as the result of the tax increase from 30% to 45%, while the prices of 2,000-3,000cc vehicles will increase by 15%, while cars with engine capacity of over 3,000cc will see prices go up by 23%.

Michael Pease, general director of Ford Vietnam, has outlined some key challenges that the Government must address in order to ensure a strong and self-sustaining auto industry.

“Vietnam’s auto taxes are one of the highest in the world,” said Pease.

“In particular we remain concerned about the change in special consumption tax in 2009 that clearly disadvantages the multi-purposed vehicles that are best suited for business as well as family needs and have been invested in most heavily for local parts sourcing in Vietnam,” he said.

He also underscored the importance of having a long-term consistent automotive policy, focusing on improving infrastructure.

Automakers said that the luxury tax will lead to the fall of the automobile market. Car prices will increase, while consumption will significantly dwindle, putting automakers against huge challenges.

Most automobile manufacturers have plans to scale down production in 2009, with some reportedly planning to cut down output by 50%.

They said that car prices would decrease only when the output increases, and vice versa, lower output spells higher car prices.

Automobile manufacturers in a recent meeting with leaders of the Ministry of Industry and Trade have asked the Government to rethink tax policies related to the automobile industry in order to help bail it out of hardship.

The manufacturers asked for slower implementation of the luxury tax law, under which the tax will increase from 30-50% to 45-50-60% depending on types of vehicle, plus the high ownership registration tax and the value added tax.

They urged the Government to lower the taxes on automobiles, at least to the levels applicable before April 2008.

The manufacturers also sought a dialogue between the Government and VAMA to develop a comprehensive long-term strategy for the industry.

Despite sluggish car sales in the last months of 2008, VAMA members in the first 11 months of last year still reported a 48% rise in sales from the same period in 2007 to a record 100,900 units. (SGT)