Vietnam: first steps towards maturity
As most countries in South-East Asia, Vietnam is witnessing a steady GDP growth since the late 80s and a very strong growth since 2007. The country is performing well in export (agricultural produce), foreign investments and tourism.
Due to its market size, the country ranks on the 55th place on the Global Competitiveness Report of the World Economic Forum, up 5 places from 2017, but still behind most Asian countries. Vietnam still has some serious catching up to do with regards to education, infrastructure and policy infrastructure, amongst others.
Vietnam’s dependency on oil import has a an impact on inflation and trade with the US could suffer from the US withdrawal from the Trans-Pacific Partnership, but nevertheless, growth is predicted to be stable thanks to a growing export sector, estimated at 6.6% for 2018.
The Vietnamese Government is taking the IMF’s and the WEF’s advice to heart and has chosen a strategy that focuses on administrative harmonisation, facilitation of investment and boosting domestic production. These necessary alterations in Vietnam’s way of working are causing a decline in local car sales; the industry needs time to adjust to new regulations.
272.750 vehicles were sold in 2017, down 10% compared to 2016. Consumers in 2017 postponed the purchase of a new vehicle to 2018, due to the announced alignment of Vietnam with the tariff schedules of the ASEAN Trade in Goods Agreement, which will reduce car import tariffs amongst South-East Asian countries to 0.
With a vehicle per capita ratio below 20 (amongst the lowest rate in Asia), there is ample room for industry growth. In addition, the middle class and their disposable budget are growing. As a result, the domestic car manufacturing industry is predicted to grow by almost 20% until 2025 and another 13% by 2035.
Vietnam has started to regulate the production, assembly and import of vehicles, concretised in a legislation that certifies quality, safety and environmental protection of foreign vehicles. The Government hopes that this will ultimately boost local production in favour of import. Quality certification of car parts is also in scope of the regulation.
With regulation and identical quality standards for domestic and foreign products, comes a more transparent and harmonised market, and a better positioning of the Vietnamese production.
General Motors and Vingroup
Vingroup is one of Vietnam’s largest distribution and lifestyle conglomerates, owning shopping malls, schools, hospitals, building projects and much more. Vingroup also owns Vinfast Trading and Production, the automotive unit of the company.
General Motors has transferred ownership of its Hanoi factory to Vinfast, that will produce small cars under GM license. Vinfast will also become the countrywide distributor of GM’s Chevrolet brand.
Vinfast has also its own 2 cars, at least it will have very soon: a luxury sedan and a luxury SUV, both developed from scratch in little over a year’s time. Feedback about the car at the Paris Motor Show was moderately positive, but this is not the point. Vinfast has demonstrated its capability to develop and produce and, more important, to have all the necessary budgets available to start up a Vietnamese brand.
For the Fleet Manager
Most of the international companies are showing interest in Vietnam. The country is large, well located in between China and the rest of South-East Asia, has 100 million young consumers with an increasing disposable income and is setting a couple of good steps towards maturity.
Leasing is offered mainly through typical short term rental suppliers (Hertz, Avis) or one of the hundreds of tiny local suppliers, but here as well, the potential is big for new suppliers. Vehicles are usually leased with a driver, which is recommendable for employees who spend most of their time outside of the cities.
Contracts usually include limited usage of driver services (working hours), insurance and maintenance. Practically, the service is usually pretty good, be it not as professional as what can be expected from a Western or Japanese leasing company. For example, invoices are often hand written on “red invoices” (official and unique invoices). Because of the need of a hands-on approach, a local fleet manager is recommended.