Changes to the industry's tariff structure have yet again been central to the performance of Vietnam's automotive industry, although the results differ between vehicle segments, according to research undertaken by Business Monitor International (BMI).

The country's new vehicle sales rose by 31% year-on-year (y-o-y) in August, but a change in tax policy boosted sales of five-seat passenger cars by 50% compared to August 2008. After a new tax structure was introduced based on the size of vehicles, sales of five-seat cars rose from an average of 2,200 per month in H109, to over 3,000 in July and August. Total vehicle sales in August reached 10,555 units, as sales in the SUV/MPV segment fell 2%.

From April 1, the purchase tax on vehicles with six to nine seats rose from 5% to 10-15%. Less explicable is a decline in monthly imports. Vehicle imports into Vietnam fell by 16% in August compared to July's record tally, which considering the sustained health of domestic vehicle sales, appears to be against industry trends and with no apparent cause. Imports in August fell to 7,300 units from the 8,700 units recorded in July and follows six months of consistent import growth.

On an annual basis, imports are already close to surpassing the industry's target for the whole of 2009. Imports for the eight months to August reached 39,600, while the target for the year is 40,000 units. This has prompted BMI to revise our forecast for full-year imports upwards, while a slight upwards revision of our sales forecast for domestically produced vehicles results in a decline of just 0.5% for total industry sales.

The fluctuation in Vietnam's trade tariffs, as well as currency exchange rates which are causing problems for carmakers producing in the country, have contributed to Vietnam's 12th place in BMI's Business Environment Ratings for the automotive industry in Asia Pacific. There are plenty of reasons to attract carmakers to the country. The 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. However, low scores for country structure and 'Limits to potential returns' drag the total score down to 47.5 from a possible 100.

Half of the locally producing carmakers posted positive growth in the first nine months of 2009, which was an improvement from just one in H109, although the competitive landscape remained largely the same. Toyota Motor retained its lead and turned its 13% drop in sales from H109 into a 4% increase for 9M09. Mercedes-Benz Vietnam achieved the best growth of the top 10 manufacturers with a 23% rise in sales, but VMC performed best out of all carmakers with 67% growth y-o-y.

Truong Hai Auto leapfrogged Vinamotor to take the second place held by the latter in the same period of 2008, after achieving growth of 1% compared to a 37% decline for Vinamotor.

This article is based on the BMI's Vietnam Autos Report Q1 2010 (download)