Interview: Michael Behrens
What is driving automotive growth in Vietnam?
MICHAEL BEHRENS: In 2011 the Vietnamese market was very predictable and low on consumption. Since then it has taken off in the sense that it has a good growth rate given the market’s small size. Sales in 2016 were around 300,000 units compared to millions in other markets in the region. This growth has been driven by Vietnam’s urbanisation and the rising affluence of its middle class. To a certain degree, it could also be attributed to a social trend that was non-existent 5-10 years ago. A lot of factors were not in place then: cars were chauffeur-driven, whereas now a car is seen as a practical means of transportation.
To cope with the changes, well-established companies needed to modernise and diversify to cater to the changing needs of consumers. With regards to financing, finding a leasing programme five years ago was nearly impossible. When the professionalisation of car financing finally began, it made it easier for the consumer to buy, lease or sell a car.
Vietnam is on the right track. It is a growing economy and the market is shifting away from being male- and chauffeur-driven to focus more on urban, female and young consumers. The growth segment is aged 25 to 35 years old and is extremely smart, tech-savvy and has a sense of pride. They buy functionality rather than brands. This move away from the brand towards products is what has impacted the country’s automotive sector most.
Which segments are forecast to increase sales in the short and medium term?
BEHRENS: In the passenger segment, not everybody needs an SUV, but the city SUV could be a rising trend in the coming years. This is linked to the fact that a lot of cities have logistical issues that we don’t have in developed countries. For example, flooding and poor infrastructure are common in Vietnam. The Japanese and South Korean models have an overall advantage, being from neighbouring countries. In the luxury segment, all the European brands are growing. It is also a question of culture, personality and individuality.
The commercial vehicle segment is also set to strengthen, as there are a lot of mobility changes in Vietnam. A new regulation was passed and a paper was published highlighting the needs and desires of the government, and interestingly enough the focus wasn’t so much on passenger vehicles, but on commercial ones. Although two-thirds of today’s market is passenger vehicles, growth will come from commercial cars. Passenger car manufacturing has lost momentum in Vietnam; the new focus will be on trucks and buses and supply industry.
Has the current taxation regime hindered the growth of the automotive sector?
BEHRENS: Today’s sales growth may sound unusual as cars are expensive in Vietnam. Taxation is extremely high, and so a basic car is ultimately a luxury model. The high level of tax is due to worries about infrastructure. If more growth is desired, tax reductions should be made. Since June 2016 a new taxation scheme has been put in place. The luxury models became slightly more expensive and environmentally friendly cars dropped slightly.
What effect will the EU-Vietnam Free Trade Agreement have on the domestic car market?
BEHRENS: The car industry specification under the agreement is a major component of the European trade regime. Depending on the origin of the car and other factors, the tariffs will be reduced to zero over the next seven to nine years. This will boost European auto exports to Vietnam. Although Vietnam doesn’t have a strong car manufacturing ecosystem, it could act as a supporting industry.