Auto prices not to fall despite zero ASEAN tariff

There is great anticipation that automobile prices in Vietnam will decrease by 10-15 percent in the case of older models and 5-10 percent in the case of new models as automobile import tariffs are cut to zero under the ASEAN Trade in Goods Agreement which takes effect in January 2018.

But some market analysts dismiss the likelihood, saying in fact imported car prices are likely to rise significantly since their supply would dry up while even the prices of domestically assembled vehicles would not come down.

Recent changes in the Investment Law classify certain automobile businesses as “conditional”. The Government recently issued Decree No 116/2017/NĐ-CP to spell out the regulatory and licensing conditions for automobile manufacturing, assembly, import, maintenance and warranty.

Importers are required to obtain an automobile importing business licence from the Ministry of Industry and Trade.

To qualify for the licence, importers must set up appropriate warranty and maintenance facilities and be authorised by the manufacturers in exporting countries to conduct recalls in Vietnam if needed.

Importantly, quality inspection provisions with respect to imported vehicles are much stricter than current regulations.

For example, importers are required to provide a type of approval certificate from a competent foreign agency for the automobiles they sell.

The certificate is a producer’s declaration that production samples of a design will meet specified performance standards.

The document will contain information like the type of approval number, technical specifications and other data.

Besides, quality inspection will be done on every imported vehicle unlike now when they check only a few at random. 

Satisfying quality inspection will cost importers hundreds of millions of dong, many times higher than now.

This is expected to reduce auto imports substantially, causing a widening gap between supply and the relentlessly rising demand.

Besides, with respect to domestic manufacturers, the decree stipulates certain requirements pertaining to facilities, human resources, labour safety and hygiene, fire safety, as well as environmental protection.

They include the need to have test tracks that are at least 800 metres long to do more reliable safety tests. Most manufacturers do have tracks but of much shorter length.   

This new requirement would also raise automobile manufacturers’ production costs to an extent.

The cost of making cars in Vietnam is already 20 percent higher than in neighbouring countries since 60-80 percent of components and materials has to be imported in the absence of a developed auto manufacturing eco-system. This entails packaging and logistics costs.

So noone should hold their breath expecting local car prices to become cheaper in 2018.

by VNA