Auto business recovers thanks to the government's stimulus policy

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The State's supportive policies on taxes and fees have helped reduce the total cost of buying a car, stimulating demand.

Profits soared

According to the Vietnam Automobile Manufacturers Association (VAMA)’s report, the total sales of VAMA members as of the end of September 2020 reached 172,537 units, a decrease of 21% compared to the same period in 2019, and significantly narrower compared to a drop of 30% at the end of June 2020.

The positive signs in the market are also consistent with the business results of the third quarter of 2020 just announced by listed companies. Typically, the Hang Xanh Automobile Service Joint Stock Company (HAX). By taking full advantage of the opportunity when the 50% reduction in registration fees for domestically assembled vehicles came into effect, all four HAX dealers have exceeded their sales target and are among the top Mercedes-Benz car sales.

The consolidated net revenue in the third quarter reached VND 1,741 billion, up 31% over the same period in 2019; profit before tax reached VND64 billion, 3.5 times as much as in the third quarter of 2019. In the first nine months, HAX achieved VND 80 billionof pre-tax profit, up 43%.

Meanwhile, TMT Automobile Joint Stock Company benefits from the increased disbursement of public investment capital, leading to increased investment in buying trucks. Specifically, net revenue in the third quarter of 2020 nearly doubled that of the same period in 2019, reaching VND 501 billion. In addition, financial expenses and selling expenses both decreased by 11% and 29% respectively, so profit after tax recorded a growth of 207%, reaching VND284 billion. In the first nine months, TMT reached VND1,359 billion of net profit, up 94% over the same period in 2019.

The secondquarter 2020 consolidated financial statements for the 2020-2021 year of Hoang Huy Financial Services Investment Joint Stock Company (TCH) also recorded positive results when exceeding the annual plan after only six months.

Specifically, in the second quarter of this year, TCH reached VND 1,937 billion in revenue, four times higher than the same period last year. After deducting expenses, the company pre-tax profit is VND564 billion, 2.5 times higher than same period last year. In the first six months of the year, pre-tax profit reached VND808 billion, up 162% and exceeded VND8 billion compared to the plan for the whole year.

According to Ms. Tran Thi Hoang Hoa, General Director of TCH, in the second quarter of this year, both of the company's core areas of auto trading and real estate project development have achieved high efficiency.

In particular, in the commercial vehicle segment, from making a new wave of FDI investment in Vietnam, many multinational corporations have promoted plans to move factories from other countries to Vietnam, leading to increased transport demand. This has helped the sales of US Navistar tractors soar to more than VND500 billion, equivalent to 211% over the same period last year.

Since the beginning of the year, the State has issued three supporting policies for the domestic auto industry. That is Decree 70/2020/ND-CP on the reduction of50% of registration fee for domestically manufactured and assembled cars, effective from June 28, 2020 to December 31, 2020. In addition, from July 10, 2020,Decree 57/2020/ND-CP amending and supplementing a number of articles of Decree 122/2016/ND-CP allowing enterprises to manufacture and assemble domestic cars will be entitled to 0% import tax on raw materials, components and supplies that cannot be produced domestically. Therefore, production costs were reduced by 2-2.5%.

The Government also allowed an extension of the deadline for paying special excise tax on domestically manufactured or assembled cars with respect to accounts payable from March to December 31, 2020.

The above policies have helped reduce production costs and service costs, thereby reducing the total cost of buying cars, stimulating demand.

Along with that, GDP in the third quarter 2020 increased at 2.62% after only 0.39% growth in second quartershowed the recovery of the economy as well as people's income. In fact, sales of domestically assembled cars have grown in July, August and September after the 50% reduction in registration fees took effect. It is expected that car sales will continue to recover in the fourth quarter of 2020 and 2021.

Being positive

Looking at the domestic car market in the first nine months of this year, Rong Viet Securities said that there was no oversupply situation as in previous years, but the selling price was still decreasing due to efforts to attract customers in the context of low demand for cars. The total supply in the fourth quarter 2020 is expected to reach 127,000 units, while total demand is about 122,000 units. So, in 2020 there will be no inventory.

However, the inventory in 2019 is relatively large with about 85,000 units (accounting for 17% of the total supply in 2019), so the pressure to liquidate the current inventory is still high. Therefore, Rong Viet's experts believe that the fourth quarter of 2020 will be an important time to liquidate before receiving the 2021 models, so agents still have to reduce prices to attract customers.

Therefore, car dealers will still have to reduce selling prices to attract customers. This will cause the gross profit margin of companies to decline. However, overall gross profit will still grow thanks to increased sales. In addition, the recovery demand will also help companies save selling costs.

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By 2021, the cost of locally assembled vehicles will be lower, thanks to the tax incentive policy for imported raw materials, components and supplies, thereby supporting the selling price. Meanwhile, output is likely to increase when the economy returns to normal with supportive policies from the Government and people's incomes gradually recover.