Proposed registration fee cut for domestic cars sparks controversy

August 25, 2021 - 08:15
A proposed registration fee cut for domestically-produced cars has angered importers who believe it is discriminatory


Imported cars at a showroom on Phạm Hùng road. - VNA/VNS Photo Thế Duyêtj

HÀ NỘI – A recent Vietnam Automobile Manufacturers Association (VAMA) proposal to halve registration fees for domestically-manufactured automobiles has stirred debate between local manufacturers and importers.

If approved, the move will give domestic vehicles a price advantage over imports. So, while it has found support among domestic manufacturers and assembly companies, who see it as an opportunity to increase sales amid the pandemic, importers believe it is unfair.

The fee cut is part of a decree drafted by the Ministry of Planning and Investment (MPI) to support the industry amid the pandemic.

Last year, the MPI developed a draft to submit to the Government, proposing a 50 per cent reduction in registration fees for Vietnamese people to buy cars. This year, the Ministry on August 16 also made a similar move with a draft resolution to support local car manufacturers.

The reduction was one of many VAMA proposals to the Government aimed at removing difficulties for the local automobile market which has been hit hard by the prolonged pandemic. They fear the global effects of the virus will have a long-term impact on people's incomes and auto demand.

The Finance Ministry has been told to complete the task soon. The draft is now in consultation with ministries and agencies before being submitted to the Government. 

The draft also proposes the Ministry of Finance assess the impact so that it can consider and propose to continue reducing the registration fee for CKD (completely knocked down) automobiles for an additional period of time in line with the developments of the pandemic.

In addition to the above draft, on August 16, Deputy Prime Minister Lê Minh Khái also assigned the Ministry of Finance to evaluate and calculate the impact of the 50 per cent reduction.

The decision was based on a petition to the Prime Minister by Thành Công Motor Vietnam, the company that currently holds the right to assemble and distribute Hyundai automobiles in the country.

In a letter sent to the Government and the Ministry of Planning and Investment, Laurent Genet, general director of Audi Vietnam, said that the 50 per cent reduction in registration fees for domestically assembled cars last year had shown effectiveness, but was discriminatory.

Laurent noted that reduction of registration fees should apply to both locally-assembled and imported vehicles.

He cited that car sales figures in Việt Nam last year rose by 3 per cent in comparison with 2019. In the second half of 2020, the Government issued Decree No. 70/2020/ND-CP, regulating registration fees for automobiles manufactured and assembled locally through December 31, 2020. The fee reduction helped increase domestic car sales volume by 19 per cent while sales volume of imported Completely Built Up (CBU) vehicles was down by 33 per cent in 2020.  

In 2021, as the pandemic became more complicated and tougher social distancing measures were taken in many cities and provinces, business activities were disrupted and heavily affected.

Car importers such as Audi, Jaguar Land Rover, BMW, Porsche, Volvo, Subaru and Volkswagen are suffering from great financial losses in terms of showrooms, taxes, storage charges, human resources and tax contribution to the State budget.

Lê Thanh Hải, general director of Motor Image Việt Nam (MIV) - the exclusive distributor of the Japanese Subaru brand - said amid the pandemic, her company was temporarily closed and there was no revenue, but the company and its dealers still had to pay employee’s salary and cover the cost of renting the premises, bank loan interest and car storage.

Therefore, MIV wants the Government to consider and offer a support policy to reduce registration fees for all types of automobiles, so that businesses can survive the pandemic.

Other importers of major brands such as Volvo and Volkswagen have also called for a level playing field, noting that incentives will be better if they are for both assembled and imported cars. This will give customers more options to buy cars and creates fairness for businesses in Việt Nam.

Meanwhile, representatives of a Japanese automobile company, and member of VAMA, said that it was very difficult for both CKD and CBU cars to receive incentives.

Economist Ngô Trí Long said a 50 per cent cut in registration fees would stimulate consumer demand, while boosting production and circulation of goods, while recovering economic growth.

He noted that the reduction of registration fees for domestically assembled cars should be carefully considered to create a fair business climate and avoid discrimination between domestic and foreign businesses. 

Automobile imports and sales

In the first seven months, Việt Nam’s imports of CBU vehicles posted a year-on-year surge of 111.2 per cent in volume despite the pandemic.

Statistics from the General Department of Vietnam Customs showed that in this period, Việt Nam purchased 95,525 CBU vehicles worth US$2.1 billion, surging 107.1 per cent compared to the same period last year.

Thailand and Indonesia were the main providers to Việt Nam, holding the lion’s share of 80 per cent. Some 47,493 vehicles were imported from Thailand and 28,362 units from Indonesia, growing 134.8 per cent and 60 per cent respectively, compared to the same period last year.

In July alone, 14,407 units worth US$290.8 million were imported, down 5.9 per cent in volume and 13.3 per cent in value compared to June.

Meanwhile, members of VAMA sold 166,516 vehicles of all types in January-July, up 27 per cent compared to the same period last year. Of this figure, domestically-assembled cars made up 15 per cent, or 94,109 units.

In the first seven months, TC Motor of Hyundai Thành Công revealed that it sold 38,066 vehicles, while VinFast sold 19,720 cars in the same period.

Combining the sales volume published by VAMA, TC Motor and VinFast in the first seven months of 2021, a total of 224,302 vehicles were sold domestically.

These numbers do not fully reflect the car market in the country. In addition to VAMA members, the local market attracted foreign brands including Mercedes-Benz, Nissan, Audi, Jaguar, Land Rover, Subaru, Volkswagen and Volvo, whose business results were not revealed.

According to industry insiders, the strong surge in CBU vehicles imported to Việt Nam in the first seven months came as a surprise, as purchasing power in the car market plummeted in recent months. This can be attributed to automobile business anticipation of possible improvement in purchasing power once the pandemic is under control, particularly during peak season at the end of the year when Tết nears.

Representatives of big brands such as Audi, Subaru and Volkswagen said car imports had not been disrupted despite the impact of the virus at a global and regional level.

However, the pandemic has caused car assembly and sales to slow. Due to the Government’s strict social distancing and lockdown orders, many car dealerships are temporarily closed.

Sales specialists also believe that cultural factors might play a role in the reduction of purchasing power in August. In addition to the continued impact of the pandemic, August in the Gregorian calendar coincides with the seventh month in the Lunar calendar; the latter is considered an unlucky time for business and trade, and many delay major purchases at this time.

The domestic car market is likely to return to normal after the seventh Lunar calendar month, as the pandemic is expected to be controlled across the country and the vaccination rate increases. -- VNS