Vietnamese automobile industry's challenges will last until 2024

Unprecedented Difficulties

The director of a car assembly plant in Ho Chi Minh City remarked that they had never experienced such issues previously. From the beginning of 2023 to the present, the company's revenues have dropped by about 30%. This year is projected to be unprofitable since numerous perks have been transformed into consumer incentives. "We had to slow down production, decrease working hours, and trim labor." The interruption in the supply chain affects not only us, but also domestic component suppliers," he stated.

This is a frequent problematic scenario in today's automobile business. Automobile assembly and manufacturing firms are frustrated as purchasing power declines, inventory pressure grows, and expenses become increasingly onerous.

According to the Vietnam Automobile Manufacturers Association (VAMA), overall market sales till November 2023 have declined by 29% compared to 2022. In comparison to 2022, passenger automobiles fell by 31%, commercial vehicles fell by 16%, and specialty vehicles fell by 57%.

According to automotive industry forecasts, the automobile market would fall by more than 20% in 2023 compared to 2022, amounting to around 70,000 cars, including almost 50,000 locally built vehicles. The decrease in sales also results in a large decrease in budget income from taxes and fees. Not only that, but component suppliers have been forced to cut output, negatively hurting the supporting industries. According to several automobile businesses, these issues are not projected to disappear by the end of 2023, but will likely last at least until the first half of 2024. The car industry's resiliency is deteriorating.

Vietnam's automotive sector is hampered by two significant bottlenecks: a limit ed market size and high domestic automobile pricing. Both of these blockages, according to experts, are driven by excessive taxes and fees. High taxes and levies push up automobile prices while people's salaries remain low, placing the goal of having a personal car out of reach for the majority of people.

With the average monthly wage in Vietnam now at 7.5 million VND, saving the full income for 90 months would be required to purchase an economical automobile priced around 600 million VND. Few individuals can afford to acquire vehicles, resulting in poor sales statistics, and the automotive market has remained relatively tiny throughout time.

"Stagnant Prosperity"

After decades of growth, Vietnam's automobile sector will have surpassed 500,000 cars of all sorts by 2022. However, the total for locally built automobiles was roughly 300,000. According to projections, the market will shrink to around 400,000 vehicles of all sorts in 2023, with locally built automobiles falling below 300,000.

Businesses believe that a car model must sell 50,000 units or more each year in order to justify investing in component manufacture, strengthening the supply chain, boosting localization, and lowering costs. However, no automotive model has ever sold as many units in Vietnam. The greatest sales of a locally built automobile model in 2023 were less than 20,000 units. The majority of the other models sold fewer than 10,000 copies. Low sales and limit ed output will result in "stagnant prosperity" for the car sector.

Cars with less than ten seats are subject to the most taxes and fees, which include import taxes, special consumption taxes, value-added taxes, registration fees, and other charges. Domestically built vehicles now enjoy a 50% discount on registration expenses. However, in the year 2023, this policy is not entirely implemented.

The automobile sector contributes considerably to the yearly GDP of many nations, producing millions of employment and having extensive economic implications. The automobile industry is regarded as a cornerstone of the manufacturing sector. Meanwhile, the manufacturing industry has long been seen as critical to industrialization and economic progress, acting as the "key" to success. However, excessive taxes and levies have suffocated this manufacturing sector, impeding its expansion.