Automobile market: How much will the price decrease to boost sales?

	Tens of new Nissan cars at Hai Phong Port have not carried out import procedures
	Tens of new cars left at Hai Phong port
	Automobile imports from UK decrease sharply, valued at VND 1.9 billion/unit

Lowest sales in five years

The Covid-19 pandemic severely affected many business and manufacturing industries, including the automobile industry. The current concern of automobile manufacturers and businesses is the sharp decline in sales – the lowest in the past five years.

According to the Vietnam Automobile Manufacturers Association (VAMA) in the first quarter of 2020, VAMA sold 50,009 cars, down 33% compared to the same period in 2019. If adding the sales of TC Motor, a Hyundai car distributor (15,362 cars), in the first quarter of 2020, 65,371 cars were sold, down 38% compared to the same period last year.

Automobile outputin April was estimated at 6,900 units, down 61.4% over the same period last year. For the first four months of the year, automobile output was about 61,400 units, down 23.8% over the same period last year.

For assembled cars, the inventory in the first quarter of 2020 increased by 122.5% compared to the same period in 2019. Meanwhile, imported cars in the first four months decreased by more than 30% compared to last year.

In the overall reduction picture of the whole market, car sales of all brands are declining. Brands with good sales such as Toyota, Ford, Thaco (Kia, Mazda) and Mitsubishi dropped alike. Ofwhich, after many years, for the first time, Thaco did not have any products on the list of best-selling cars in the market. By the end of March 2020, brands decreasedsuch as Peugeot -56%, Mazda -49%, Ford -48%, Honda -39%, Toyota -28% and Hyundai -9.1%, respectively

Sacrifice profits

The Ministry of Industry and Trade forecasts that in the following months, a number of business and manufacturing industries, including the automobile industry,will continue to face difficulties. This industry is suffering double effects and difficulties in manufacturing due to the interrupted supply of raw materials, sharp decline in consumption and strong increase in inventory.

Currently, the companies are adjusting sales plans and cutting profits to sell inventory. In particular, selling the inventory is the top task. And in order not to put more pressure on dealers, many companies cut off production of each model and do not pursue the initial figure set out. However, this is not easy, because the procurement plan for components was made months ago andit has to balance other factors such as labor, finance and profit.

Imports are also difficult to "stop" because the order was madefrom three to six months ago, the ordered goods are importing and being stored in stock. Not to mention that factories around the world are back in operation.Cars in Thailand, Indonesia, South Korea and Japan are also in surplus. This volume of cars will be quickly exported to Vietnam, many of which come from the market subject to import tax rate of 0%.

Sacrificing profits and discounting is the tactic that companies are applying to increase sales. In recent times, the market has continuously received information about promotions, gifts, incentives and discounts from automobile brands including those with top sales such as Toyota, Ford and Honda with remarkable discounts and many incentives and gifts.

However, in reality, the sales do not reach as expected. The important reason comes from the psychology of customers who are waiting for supportive information from the State's policies and the fact is that the companies cannot stand the pressure of the inventory, so they continue to reduce prices.

Automobile manufacturing is facing difficulties due to a sharp decrease in consumption

Big companies give strong moves

The psychology of limiting spending and waiting for a deep discount has caused the automobile market to gradually freeze.

On May 6, the automobile market was strongly impacted by the information thatVinFast, the Vietnamese automobile brand announced a discount of hundreds of millions of dong for the two models in the luxury segment – Lux A2.0 and SA2.0. The hatchback model A class and VinFastFadil do not change the list price of VND415 million in this adjustment. However, agents are now applying a 10% discount to customers who buy Fadil with the form of direct payment.

Although this reduction is only applied in May and customers have to pay 100% of the car value, the move of "discount of hundreds of millions of dong" of this company is enough to shock the market. Because from November 2018, the two models Lux A2.0 and SA2.0 of this brand have continuously increased and (four times) never decreased.

This large reduction makes Lux A2.0 cheaper than D-segment such as Toyota Camry and Honda Accord. With SA2.0 model, the price after discount is much higher than many D-class SUVs such as Toyota Fortuner, Hyundai Santa Fe and Ford Everest.

Previously, although the competitors reduced to stimulate consumption, VinFast still kept the price increase schedule set out from 2018. This time, VinFast cannot stand the "heat", it has to drop sharply. This move of VinFast clearly makes its competitors worried.

Not to mention much information that this Vietnamese brand is going to launch a big program related to the policy of buying and selling used cars and supporting customers buying new Vinfast cars.

Therefore, customers are eager to wait and predict the next moves of the big companies who always lead the game, such as Thaco, TC Motor and Toyota. Answering questions on this issue, representatives of companies on the one hand tell about difficulties, but on the other hand are very reserved when talking about business strategies in the future.

From now until the end of the year, if the companies do not want to let the inventory "die", they must reduce prices. But how much is the reduction to stimulate customers to buy products?

Meanwhile, the psychology of Vietnamese customers is often: when companies are in a race of price discount, they want to wait for a deeper discount. So, the question is, how much will the price decrease to boost sales?

Breaking the waiting psychology of customers is the first thing to do.