Vietnam Autos Report Q2 2010

Sales of domestically produced vehicles rallied in the latter months of 2009 thanks to tax cuts on the purchase of passenger cuts. Sales for the first 11 months of the year climbed into positive territory after a 132% year-on-year (y-o-y) rise in sales for November. However, the total of 12,259 units compares to a particularly low base last year when the global economic crisis was impacting on sales. Nevertheless, sales for the 11-month period are now 2% higher y-o-y at 104,395 units, which is a better than expected performance for sales of domestically produced vehicles. The upturn in November has led us to revise its estimate for 2009 upward to growth of around 3%. We also expect sustained positive annual growth in 2010 as pent-up demand is fulfilled.

The market has been buoyed by a 39% rise in passenger car sales over the year-to-date, on the back of tax cuts. However, this has unbalanced the market as sales of SUVs and MPVs, usually one of the stronger segments in the country, were up by just 1%. The government may be looking to redress the balance, however, with reports of a new industry strategy, which will favour small MPVs. This would be a positive outcome for Japan's Toyota Motor in particular, which publicly questioned the logic behind implementing the higher Special Consumption Tax (SCT) on the country's most prominent vehicle segment. Toyota's Innova is a leader in the Vietnam's MPV segment, and the company has invested heavily in increasing its local content.

Vietnam remains in 12th in our Business Environment Ratings for the automotive industry in the Asia Pacific region with 47.5 from a possible 100. A newly liberated auto market has witnessed stellar growth, and according to the above-average rating for its potential over the next five years, sales growth should be maintained, despite a slowdown in the latter months of 2008 and H109. The highest score is for market risk, which stands at 85.0. Its country risk score has also risen from 49.8 to 51.5, taking its total score for risks to realisation of returns up to 68.2. Vietnam is still a country we would expect to see climb the ratings in the future, particularly if its vehicle tariff policy becomes more consistent.

In terms of competitive landscape, Toyota retained its lead and turned its 13% drop in sales from H109 into a 19% increase for 11M09. This was largely due to its presence in the multi-purpose vehicle/sports utility vehicle (MPV/SUV) segment, which registered a spike in March when customers looked to avoid the higher Special Consumption Tax (SCT) introduced in April. A new strategy favouring MPVs would likely see the carmaker extend this lead. Mercedes-Benz Vietnam achieved the best growth of the top 10 manufacturers with a 48% rise in sales, but VMC performed best out of all carmakers with 63% growth y-o-y.