Vietnam’s vehicle market continued its rapid decline in February, with sales of locally-made vehicles dropping by 25.2% year-on-year to 6,671 units – according to data released by the Vietnamese Automotive Manufacturers Association (VAMA).

This was the sixth consecutive month of decline for the market and follows a 68% drop in January. Domestic vehicle sales increased by 37% in 2008 to a record 110,186 units, despite a sharp drop in the final third of the year following a hike in import duties in August.

Sales of locally-assembled vehicles in the January-February period fell by 50% to 10,523 units, while CBU imports dropped to 2,600 units from 10,000 units a year earlier. Economic growth weakened significantly in the fourth quarter of 2008, dragging down full-year GDP growth to 6.2% after growth rates of 7-8% in the first three quarters of the year.

With exports, foreign direct investment (FDI) and domestic consumption continuing to decline in January and February, the IMF and foreign banks expect GDP growth this year to be around 5%. The government’s forecast is for 6.5% GDP growth, however

The commercial vehicle sector the hardest hit this year following an increase in the VAT rate from 10% to 15% at the beginning of January. Cumulative volumes were down by 66% to 4,632 units in the first two months of 2009, as small and medium business also struggled with the deteriorating economic conditions and falling domestic sentiment.

The passenger vehicle sector fared a little bit better, with a cumulative drop of 20% to 5,891 units, helped by a price war among the key manufacturers – with cuts averaging at around 15%. But overall, the outlook for the market this year is very negative – with sales likely to drop by at least 30-40%.

Further increases in taxation are also imminent, with the special consumption tax on passenger cars over 3000cc to rise from 50% to 60% in April. Taxes on cars with 2000cc-3000cc engines will remain at 50%, while smaller cars will enjoy a small tax reduction from 50% to 45%.

Taxes on minivans/MPVs and SUVs with 6-9 seats are set to rise from 30% to 45% on models with engines up to 2000cc; from 30% to 50% on models with 2000cc-3000cc engines; and from 30% to 60% on models with engines larger than 3000cc. Hardest hit will be models such as the Toyota Land Cruiser.

Import duties on components used for CKD assembly will be cut by up to 5% to help the local industry, however. Tariffs on car engines, for example, will be reduced to 20% from 22%-23% and from 15%-25% to 10%-20% on engine parts.

Tony Pugliese