If you’re lucky, and if you look closely, you can spot one or two Bentleys in Pasteur or a few Maybachs along Hai Ba Trung during rush hours. Not to mention the growing number of Benz and Lexus in the streets of Saigon.
The number of luxury vehicles may be increasing but so does the number of vehicles in general. With the country’s middle class growing, car ownership is steadily rising. Vietnam recorded a year-on-year surge of 36% in sales for the first quarter of 2021, the Vietnamese Automobile Manufacturers Association said.
The VAMA announced recently that its members sold a total of 70,952 vehicles from January till March this year. A total of 51,126 passenger cars were sold, a 34% increase. Similarly, 18,735 commercial vehicles, up 43%, and 1,091 special-use vehicles, up 17%.
More specifically, March auto sales by VAMA members grew up to 127% against February’s 30,935. Of these, 21,089 were passenger cars, 9,227 commercial vehicles, and 619 special-use vehicles.
Sales of domestically-assembled vehicles rose 99% month-on-month to 70,952, while those of completely-built-up (CBU) vehicles increased 177% against January to 13,795, according to reports from the local media.
Hyundai Accent, Mitsubishi Xpander, Vinfast Fadil, Ford Ranger, and Toyota Vios were the top five cars in terms of sales in the first quarter this year — over 21,000 units sold.
It’s also worth noting that Vietnam’s motorbike sales dropped over 4% in Q1. Data came after VAMA announced that its five members sold only 701,454 units.
Car ownership and challenges in manufacturing
Vietnam’s automobile industry has grown significantly in recent years. In fact, according to a 2020 report from Dezan Shira and Associates, the average growth rate of domestically assembled vehicles was approximately 10% per year in the 2015-2018 period. “With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the Vietnamese market, the number of spare parts suppliers have also invested in the industry giving the sector a much-needed boost.”
In the same report, it was predicted that the growth of car ownership is “likely to be stunted in the short term due to the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its economy. However, even before the country has fully recovered from the impact of the pandemic, the growth seems to continue to rise.
But no matter how booming the industry gets, the Vietnamese automotive still faces stiff competition. The zero-tariff policy between ASEAN countries that Vietnam is part of is, unfortunately, part of the reason for this. It means imports are way cheaper than Vietnam-made vehicles.
Even if Vietnam is one of the four largest automobile manufacturers in Southeast Asia, the country has one of the lowest average localization rates in the region. Far behind Thailand, Indonesia, and Malaysia with only around 10-15%.
“In addition, the local automobile industry has not been able to invest in core and high technology products such as engine production and transmission systems. Localized parts are mostly of low technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic products,” reads the Vietnam Briefing report.
Not to mention about 80-90% of the main raw materials used to manufacture components are still imported. As a result, companies are required to import approximately US$2 billion to US$3.5 billion in components and parts for vehicle manufacturing, assembly, and repair each year.
Because of this, compared to the other countries in Southeast Asia, Vietnam’s domestic automobile production costs are 10-20% higher. Hence, the cost of cars produced locally is at a disadvantage compared to completely built units (CBUs) imported from a foreign land.
But despite those facts and the present pandemic, growth in auto sales during March was attributed to the launch of new and updated models and the introduction of promotions.