Is abandoning assembly the right direction for automobile joint ventures?

As reduction in import duty, many joint ventures have shifted to import completed cars instead of investing in manufacture. Illustration image.

From 2017, the Fortuner and Civic are the most popular car lines for Toyota and Honda in Vietnam, but they have moved to import instead of domestic assembly in the country. Toyota also made a equivocal statement about completely stopping domestic manufacturing to switch to imports of complete units. It is not difficult to understand because the size of the Vietnamese market is relatively small compared to Thailand (where it manufactures Honda Civic production) or Indonesia (for manufacturing Toyota Fortuners).

Besides the Civic, Toyota Vietnam now imports many models such as: Yaris, Hiace, Hilux, Land Cruiser, Land Cruiser Prado, Alphard, Wigo... It is known that the Wigo is the latest model brought from Indonesia for the small car market segment, cheaper, of lower quality than the other models, but with quite a few additional options compared to its Korean competitors.

Samples imported from Thailand by Honda include: HR-V, CR-V, Civic, Accord, Jazz. While Ford Vietnam is providing Fiesta, Focus, EcoSport, Everest, Explorer, Ranger and Transit minibus. Only four lines are assembled domestically. They are the Fiesta, Focus, EcoSport and Transit.

In the first half of 2018, not many cars were imported because they did not meet the requirement as stipulated in the Decree 116. At the end of July, the number of imported vehicles increased sharply, thus it lead to difficulties in identifying what are the actual import figures, as it is does not exclude the case of “window dressing” in making financial report of importer.

Retailers do not receive the car at their warehouse, but they receive the information that the car is ready at the port or on the way home to the company, so the showroom boldly opens deposits from customers. However, customers do not know the date of delivery of the car, or whether the deposit has been handled. While Cars were delivered to customers were deposited in advance.

For example, Toyota Wigo was expected to be sold in Vietnam in early 2018. That made consumers excited and be prepared to wait, but so far this cheap model is not yet available in the market.

However, many large retailers in Hanoi, Ho Chi Minh City and Can Tho received deposits of only 350 million VND, for which cars are expected to be delivered to customers in the fourth quarter of 2018. This makes the customers express their doubts and dissatisfaction when considering the comparison of purchasing cars assembled in the country, with sales features such as; car available in full quantity, many colors, and lots of extras, spare parts readily available, and may be further promoted in terms of insurance purchase.

The joint ventures are passively in the car supply due to the difficulties of importation. Illustration image

Thus, profit targets of foreign car companies have not been achieved, on the other hand it makes it difficult for customers when there are not enough cars to meet demand. Even, the phenomenon of "buy beer with peanuts" (forcing the customers to have to buy accessories when buying cars) appears, it makes many customers feel disgusted. Furthermore, the listed price is only the basic price and it does not include additional options, so if the customers wants to use a product with full utilities, they have to spend a large amount of money above the list price.

With the existing problems, many customers have returned to the optimum choice rather than waiting to buy imported vehicles. In the forums, there was the opinion that, ‘money is not easy to earn and the income of Vietnamese people is very low, if car prices increase up to the billions, it will be a great asset. But I think I should choose a car model that is close to the real value for avoiding losses. I should not buy a car without a real car to see, the price is temporarily calculated, and the delivery time is unsure’.