Vietnam’s car price problem

Car prices in Vietnam are notoriously high and authorities seem keen on keeping it that way as long as they can.

With 10 years until an ASEAN agreement to cut Vietnam’s car import taxes comes into effect, the government looks like it may hold onto its high auto taxes while it can.

CEO of Ford Vietnam Michael Pease said the price of a 2007 Ford Escape is a breakthrough on Vietnam’s auto market.

“Ford Escape 2007 is US$2,700 cheaper than last year’s model,” he says.

He predicted that the vehicle – at a total price of $35,900 including taxes – would become the most popular SUV in Vietnam.

The same car, however, is $15,000 less expensive in Thailand and $11,000 less in the U.S.

Pease said that Vietnam’s high taxes have caused the steep prices.

Fully assembled cars in Vietnam are hit with an imported car, part tariff of 20-25 percent, a luxury tariff of 50 percent and value-added tax of 10 percent.

But even when the government exempts assemblers from all of taxes, cars assembled in Vietnam will not be much less expensive than those in Thailand.

Analysts have pointed out that the Vietnamese auto assemblers are only able to work with Completely-Knocked-Down (CKD) kits, which are complete kits all inclusive of everything needed to assemble a vehicle.

Ford Vietnam’s marketing manager Truong Kim Phong said assembling a car from CKD kits costs Vietnam’s auto assemblers more money, including import and transport fees.

Local auto sales have recently approached nearly 40,000 per year, but no assembler reported losses.

Some of them are able to profit off a mere 200 car sales a year.

The only thing keeping Vietnamese assemblers in the black are their sharp prices, said an industry expert with 10-year’s experience working in the auto sector.

“There are some high-class cars whose market price in Vietnam is $20,000 higher than the actual value” he said.

According to Michael Pease, the Vietnam Automobile Manufacturers Association (VAMA) has held three meetings with the Ministry of Finance to find a way to reduce domestic car prices.

VAMA has suggested that the government repeal luxury taxes on car assembled in the country.

But analysts said the suggestion was unfeasible as the government makes too much money off the luxury tax.

At present, car taxes contribute about $800 million a year to the state coffers.

But Vietnam will have to remove the tariff on imported cars and parts by 2018 as part of the country’s agreement upon entering the ASEAN Free Trade Area.

Domestic producers have expressed fears that locally assembled cars will be unable to compete with higher-quality imported cars once the price difference is canceled out by the tax cut.

Source : thanhniennews.com

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