New regulation puts the squeeze on Vietnamese car importers

Nguyen Dinh Thanh, the owner of a car dealership in Hanoi’s Long Bien District, is in danger of going out of business when a new decree regulating automobile imports takes effect next year.

The decree stipulates that traders will only be permitted to import automobiles if they can provide valid vehicle registration certificates issued by authorities from the countries of origin.

Original quality control certificates for each vehicle and letters of authorization regarding recalls of defective vehicles from the manufacturers will also be required, along with copies of quality assurance certificates provided by the countries of origin.

“The requirements are too strict for car dealerships to meet,” Thanh said, worrying that the dealership that has fed his family and dozens of workers over the last 10 years will have to close.

“We will import 40 more units before the decree takes effect (January 1, 2018). When they are sold out, maybe in two months, we will have to shut down the business.”

Thanh is not the only car dealer concerned about the new regulations.

Nguyen Tuan, director of auto dealership Thien Phuc An, said: “It is very difficult to get copies of quality assurance certificates for imported cars from foreign authorities. Only official distributors and subsidiaries of manufacturers in Vietnam can get them.”

“Small traders who import cars through sub-agents or a third country are unable to do this,” he added.

Another requirement that requires enterprises to have one car from each batch of imports technically accredited in Vietnam will cost importers more time and money, he said. “Businesses may have to spend weeks and up to VND100 million ($4,340) to complete the accreditation procedure.”

Under current regulations, only one certificate is required for each model of car, regardless of how many batches are imported.

Pham Anh Tuan, head of the strategic planning department at Toyota Vietnam, said foreign authorities only provide quality assurance certificates for cars sold in their own countries, not for those that are exported. This is the same in Vietnam.

In some countries, authorities do not issue these certificates at all. In the United States, for example, car manufacturers are responsible for quality control, and government agencies only take over after the assembly line, he said.

Thanh urged the government to change the policy so that car dealerships can survive. He said it would be a waste of money if car dealers had to shut down after making huge investments. Thousands of employees would also lose their jobs, he added.

Cars displayed at a motor show in Hanoi in 2016. Photo by VnExpress

Incentives for locally-produced cars

Vietnam wants to design and make cars for its millions of motorbike and scooter riders. The country’s ambitions are similar to efforts being made by companies in China and Malaysia, which have also tried to create cheaper, local brands to woo consumers in a region where foreign brands such as Toyota and Volkswagen have had years of dominance, according to Bloomberg.

The Ministry of Finance has recently proposed two plans for 2018-2022 to cut import tariffs on parts used to assemble cars with nine seats or fewer and trucks with a capacity of five tons or less.

Under the first plan, import tariffs on 163 auto parts would be removed, bringing the total import tax for auto components down from 14-16 percent to 7 percent for cars with nine seats or fewer, and to 1 percent for components used on trucks with a capacity of five tons or less.

Under the second plan, import tariffs on 19 parts, including engines, gear-boxes, automatic transmissions and fuel injection pumps, which local enterprises are unable to produce would be removed. The tax on a further 42 parts would also be reduced to 10 percent from the current 15-25 percent. According to the plan, average import tariffs on the whole set of auto components would be cut from 14-16 percent to 9-11 percent for cars, and to 7.9 percent for trucks.

To enjoy the tax cuts, automakers would have to reach annual growth of 16-18 percent and ensure that the proportion of locally-produced auto parts reached 40 percent by 2022. Enterprises that failed to meet these targets would pay higher taxes on imported parts.

Both proposals will be put forward to the government for consideration.

The Ministry of Industry and Trade has also suggested reducing the special consumption tax on locally produced cars based on the proportion of their localization.

With these incentives, the cost of locally-produced cars is likely to fall, helping them to compete with imported vehicles, said industry insiders.

Thanh said the government has adjusted its policies on the auto industry too many times in recent years, hurting car importers. “We want stable policies so traders feel more secure about doing business.”