40% of car buyers in Vietnam depend on loans

The rates vary by geographical region, with automobile firms saying more customers in the south borrow than in the north.

Vinh Nam, sales manager of Vietnam Star, a Mercedes dealer in Binh Duong Province, said generally southerners are bigger spenders than people elsewhere.

A large number of buyers in the south are businesspeople or buy vehicles for businesses, and so their purchase decision is faster.

According to salespeople, the ease of borrowing and paying interest to buy a car is the main factor affecting the purchase decision.

Interest rates on car loans are volatile and currently start at around 8.5%.

Banks lend 70-80%, even 100%, of the car’s value, but many borrowers cannot repay in time, and this is one reason why many people are hesitant about borrowing, according to banking and car sales executives.

Analysts expect borrowing to decrease this year because of credit tightening but also high interest rates.

To stimulate demand, automobile firms are offering discounts and promotions, and even subsidizing interest.

Last month Volkswagen unveiled a promotion program offering 0% interest for the first six months.

"Sales are very slow, so we have to adjust," Thao Van, head of marketing at Volkswagen Vietnam, said.

Analysts do not expect sales this year to reach last year’s half a million units.

The Vietnam Automobile Manufacturers Association said its members reported a decline in sales for four months in a row starting last October. Only 17,314 vehicles were sold in January, down 51% from December.