Vietnam’s drivers trade up from two wheels to four

Economic growth and tariff cuts spark new-car boom but sustainability doubts linger

by: Michael Peel in Hanoi

Motorcycle-riding middle class Vietnamese are trading up from two wheels to four as economic growth and cuts in regional tariff drive a boom in the market for new cars.

The signature swarms of bikes in the southeast Asian country’s main cities are being swelled by a surge of saloons and four-by-fours whose import taxes have been slashed.

The transport shift in the Communist-ruled nation of more than 90m people is part of a broader official narrative of upturn after a long period of subdued economic expansion. But lingering concerns are also reflected in the vehicle market, which has been volatile this year and is dogged by uncertainties over government policy.

Trinh Nguyen, senior economist for emerging Asia at Natixis, the French bank, said that, while Vietnam’s economy was “back on track” after “years of mismanagement”, lurking problems included bad debts, state company governance and exhaustion of agricultural land.

“Underneath the green shoots are not great roots,” she said. “If these concerns are not addressed, Vietnam’s economic future is not as bright as its potential may suggest.”

 Sales of new vehicles have exemplified the short-run economic boom, soaring 24 per cent last year and rising a further 8 per cent in the first three months of this year, according to the Vietnam Automobile Manufacturers’ Association. Consumer surveys have shown a significant rise over the past two years in the number of people who say they plan to buy a car in the next six months, according to data from FT Confidential Research.

Nguyen Nam, a 30-year-old restaurant owner in Hanoi, is one of a younger generation about to upgrade to four wheels, thanks to price cuts and easier terms for personal loans.

“I have a strong desire to have a car and the import tax changes have a big effect on my thinking,” he said, adding that he might wait for further duty cuts due next year. “Many of my friends are also waiting for next year to buy.”

The soaring passenger car sales mirror an uptick in national economic growth to an annual rate of more than 6 per cent last year after a long period in the doldrums, putting Vietnam among regional leaders once again. But underlying doubts surfaced again after expansion dipped to a three-year low of 5.1 per cent in the first quarter.

The new-vehicle bonanza has offered its own hints of fragility. Sales plunged 13 per cent year-on-year in January before soaring 50 per cent in February, according to industry data.

One reason for caution is that the car market has been buoyed in good part by a series of escalating — and unrepeatable — cuts to tariffs on imports of cars from Vietnam’s fellow members in the 10-country Association of Southeast Asian Nations. Shipments from Indonesia jumped from almost zero in the first two months of 2016 to more than 3,000 this year, while those from Thailand climbed almost fourfold to more than 5,700, according to Vietnam’s customs authority.

The import influx has also created losers as well as winners. Nguyen Trung Thang, one of the constellation of second-hand car dealers clustered around Hanoi’s Nguyen Van Cu street, complained of a plunge in sales this year as customers flocked to newly minted marques. “That sentiment is affecting the whole market,” he said.

Another dealer who specialises in new Toyotas said the southeast Asia tariff cuts were forcing sellers to lower their prices on all new cars, including those imported from outside the region. “It affects me a lot, because we have to cut down my commission so the cars can be cheaper,” said the man, who asked not to be named because he was not authorised to speak.

The surge in the new car market has further highlighted questions hanging over the autocratic government’s economic plans. Authorities have previously suggested they may raise other levies to help preserve the competitive position of local car manufacturers once the full tariff cuts take effect.

That creates a familiar boom-time dilemma for buyers such as Mr Nguyen over whether to cash in now or hang on in the hope of bigger savings before the bubble of opportunity bursts.

 “I believe there will be a very big decrease in the price of cars in 2018,” he said. “But on the other hand, I am afraid the government will put in some new taxes so that the charges will remain the same.”