Vietnam Market Summary Vietnam is a member of the Association of South East Asian Nations (ASEAN), a regional trading block with combined annual vehicle sales of 1.5 million units (1996, pre financial crises.) Vietnam has one of the smaller auto markets in ASEAN and is well below the sales levels of Thailand, Malaysia, Philippines and Indonesia, ASEAN's "big four". Vietnam's peak sales volume was in1996, before the current economic crisis. Although an accurate number is difficult to obtain, the official sales number for 1996, which includes used vehicles, was 20,000 vehicles. Other estimates of new vehicle sales, both passenger vehicles and commercial vehicles are closer to 10,000 vehicles. Like the other countries in the ASEAN region, Vietnam saw a sales decline in 1997. Vietnam's population has a fairly low per capita income level compared to the "big four" countries in the ASEAN region, although it experienced high levels of growth throughout the 1990's. Still, it is unlikely that Vietnam will be a major auto market anytime in the near future. Vietnam has installed production capacity many times its annual sales volume. There are currently 14 vehicle manufacturers with operations in Vietnam. Most intend these production facilities to act as an export base for the rest of the region. Estimates put the total installed capacity at over 150,000 vehicles per year. Originally, in 1994, the government of Vietnam (GOV) granted licenses to only four foreign manufacturers (Toyota, Isuzu, Ford and Chrysler.) However, upon reconsideration the market was opened up to a much wider number of participants. At this time Chrysler canceled its plans for a production facility. Ford currently has an assembly facility in Vietnam. In February 1994, the U.S. lifted its trade embargo against Vietnam, and in July 1995, the U.S. restored full diplomatic relations. Since that time U.S. motor vehicle exports to Vietnam have been fairly limited. In 1994, U.S. motor vehicle exports to Vietnam totaled $3.7 million. In 1995 the total increase to $19.7 million. 1996 began a decline in U.S. exports, with total motor vehicle exports of $16.4 million, followed by $11.1 million in 1997 and only $3.8 million in 1998. U.S. Motor Vehicle Investment Ford: Ford was granted a license to produce motor vehicles in Vietnam in 1995. Intended to produce vehicles for export to the rest of the region, the Ford plant currently produces a limited number of commercial vehicles. DaimlerChrysler: Chrysler was one of the four foreign manufacturers originally granted a license to set up production facilities in 1995. When the Government of Vietnam (GOV) decided to open up vehicle production to a wider number of participants Chrysler canceled its production plans. DaimlerChrysler currently produces Mercedes badged vehicles in a joint venture with Saigon Automobile. Trade Barriers Tariffs: Motor Vehicles: Passenger cars: 60 percent The government routinely allows foreign companies to import vehicles duty-free for corporate use. Automotive Parts and Components: CKDs are assessed a 20-50 percent import duty, but the government may impose an annual quota for kit imports (1996 quota was 3,500 for CBUs and CKDs). We have conflicting information on whether the lower end of the range is 7 or 20 percent. Taxes: The following tax rates apply: - automobiles with less than 5 seats: 100 percent - automobiles with 6 to 15 seats: 60 percent - automobiles with 16 to 24 seats: 30 percent Beginning in January 1999, all domestically produced vehicles will be subject to a special consumption tax. This tax will range from 30 to 100 percent. Reductions in the tax will be offered if manufacturers face losses after 5 years. Other Measures: Local Content Requirements: In late 1994, the Vietnamese government introduced a rule requiring any foreign applicant to commit to making 60 percent of vehicle parts locally, in an apparent effort to expand its indigenous automotive components production, which is currently rather limited (i.e., batteries and floor mats). Five percent of the value of CKDs must be localized after 5 years, and 30 percent by the tenth year. Although the supplier base in Vietnam is limited, it is expected that the government will force assemblers to conform to local content requirements. Prohibitions: Beginning in 1998, Vietnam has a prohibition on the importation of used passenger vehicles.