Two import tariff hikes on completely built vehicles in Vietnam within the first four months of 2008 – following four cuts during the previous year – are distorting the natural progression of the automotive market, according to BMI’s recently published Vietnam Automotives Report. Introduced to cope with both an influx of new vehicles on the road and the country’s soaring trade deficit, the rate increases resulted in a drop of 1,000 imported units between April and May. However, as April was a record month, possibly based on pre-emptive purchases before the second wave of new rates were imposed, it is difficult to say definitively that the drop was due to increased tariffs. The domestic industry continues to gather pace, however.

While sales of Vietnamese-built vehicles rose by 162% in the year to May 2008, production is also being buoyed by major investment projects such as that by Ford to expand its local production plant. The US$10mn expansion project will take the annual production capacity of the Haiduong facility to 9,500 units. The project will also create 130 new jobs at the plant, which produces the Ford Mondeo and Focus sedans, the Everest and Escape SUVs, the Ranger pick-up and the Transit van. Ford ASEAN President David Alden described the project as underlining Vietnam’s significance in Ford’s strategy for Asia Pacific and Africa.

Indeed, Ford Vietnam’s sales rose to a record 5,975 units in 2007 and this was followed by another record in Q108, when the company achieved its highest Q1 sales of more than 2,200 units. Despite its attractiveness to international carmakers such as Ford, Vietnam ranks 10th in BMI’s Business Environment Ratings for the automotive industry in Asia Pacific with a score of 48 from a possible 100. The country has received low marks for its bureaucracy and legal framework, but its production and sales growth potential, along with low labour costs score highly. The high score for Vietnam’s competitive landscape reflects its new liberation, while the regulatory environment also scores highly, thanks to new environmentally-focused laws to remove old trucks from the roads.

Vietnam is a country we would expect to see climb the ratings in future. In the meantime, Vinamotor leads the market in the year to May 2008 with sales of 13,162 units, while Toyota took second on 10,228 units, up 60% year-on-year (y-o-y). The only decline in sales came from VMC, representing BMW, Mazda and Kia, with a 36% drop. However, premium brands such as BMW and Mercedes, which posted growth of 35%, should benefit further as the year goes on from the higher import tariffs that will price high-end cars at the same or lower level as imported standard brands, making them a viable alternative for consumers.