Vietnam Auto Industry Analysis - 2016

Contents
1. Report summary ............................................................................................................................... 2

2. Life cycle and performance ............................................................................................................... 2

3. Market segmentation ....................................................................................................................... 3

4. Major players and competition analysis ........................................................................................... 3

4.1 Major players .................................................................................................................................. 3

4.2 Competition Analysis - Porters Five Forces.................................................................................... 5

5. Drivers and Barriers .......................................................................................................................... 6

6. Supply chain ...................................................................................................................................... 6

7. Regulation ......................................................................................................................................... 7

8. Outlook ............................................................................................................................................. 7

9. Appendix ........................................................................................................................................... 8

1
Vietnam Auto Industry in 2016 v1 18-04-2017
1. Report summary
Vietnam auto industry witnessed rapid expansion, growing by 34.7% CAGR in the past five years. In
terms of segmentation, Vietnam adopt European classification based on design, size and price.

As far as market share is concerned, Truong Hai (Kia and Mazda) is the leading company, followed by
Toyota, Hyundai and Ford. Regarding car models, Toyota Vios is the most popular, with Kia Morning and
Ford Ranger are closely behind. To a certain degree, the auto industry is sheltered from external
competition; barrier to entry is steep, and both supplier and buyers bargaining position are weak.
However, internal competition is intense.

The double-digit growth rate of auto industry is driven by the low number of vehicle per capita,
demographics golden age, burgeoning middle class and upgraded infrastructure. The domestic
manufacturing sector faces headwinds in terms of weak component industry, small market size, and the
0% import tax for ASEAN cars from 2018.

As part of the global value chain, Vietnam is active in assemblers, being part of joint-ventures with
foreign manufacturers. With respect to components, Vietnam mainly act as third-tier suppliers and in
the aftermarket, only capable of manufacturing basic and replacement parts.

The government determines auto industry as one of the crucial sector, aiming to meet domestic
demand. Vietnam sets a goal to integrate the component industry to the global supply chain. Although
current policy regime is quite inclusive, inconsistent and inefficient execution curb growth.

Automobile sales is projected to expand at the current rapid rate in a foreseeable future. However,
given the new ASEAN import tax, the domestic manufacturing industry is expected to dwindle, i.e. only
leading manufacturers will keep assembling the popular models, while the rest will probably shift to
import Completely Built Units (CBUs).

2. Life cycle and performance

The auto industry is in the growth cycle, having expanded 34.7% on average from 2012 to 2016
(VAMA). In 2016, the annual sales reached 304,427 units. In terms of import, Vietnam purchased
113,567 units in 2016, posting an average growth of 42.7% in the past five years (Customs). Thailand is
the number one import market, followed by China and South Korea.

2
Vietnam Auto Industry in 2016 v1 18-04-2017
 Vietnam car sales and import, 2012-2016 (vehicle units)

304,427

244,914

157,810
125,663
110,519 113,567
92,584
71,045

27,405 35,213

2012 2013 2014 2015 2016

Sales Import

Source: VAMA, Customs

3. Market segmentation
Vietnam follows European car classification, which is segmented along design, size and price. The nine
groups are A minicars, B small cars, C medium cars, D large cars, E executive cars, F luxury
cars, J SUV, M MPV and S sports cars. Medium cars (C segment) is the most popular group.

4. Major players and competition analysis

4.1 Major players

Truong Hai, with its Kia and Mazda brands, is the number one in the market. In 2016, its sales clinched
112,847 units (65,748 units if excluding buses and trucks). On the second spot, Toyota booked 57,036
units. Hyundai ranks in the 3rd place (36,400 units), followed by Ford (29,011 units).

3
Vietnam Auto Industry in 2016 v1 18-04-2017
 Top 10 auto brands by sales in 2016 (vehicle units)

112,847

57,036

36,400
29,011
11,501 9,726 8,084 7,694 6,113 5,927 5,795

Source: VAMA.
(*) Truong Hai manufactures Kia and Mazda. Do Thanh manufactures Hyundai bus and truck lines.
In terms of car models, Toyota Vios is the most popular, recording sales of 17,561 units in 2016. Kia
Morning is at the 2nd place (14,872 units), followed by Ford Ranger (14,058 units). Other trending
vehicles include Mazda 3, Toyota Fortuner, Toyota Innova, Mazda CX5, Kia Cerato, Honda City and Ford
Ecosport.

Top 10 auto models by sales in 2016 (vehicle units)

17,561
14,872
14,058
12,365
11,584 11,344
8,830
6,776
5,780 5,415

Toyota Kia Ford Mazda 3* Toyota Toyota Mazda Kia Honda Ford
Vios Morning* Ranger Fortuner Innova CX-5* Cerato* City EconSport

Source: VAMA.
(*) Kia and Mazda are manufactured by Truong Hai.

4
Vietnam Auto Industry in 2016 v1 18-04-2017
4.2 Competition Analysis - Porters Five Forces
To some extent, the auto industry is shielded from external dynamics; entry cost is high, both supplier
and buyer power are weak. However, internally, the contention is fierce, as evidenced by the recent
price war.

i. Supplier Power
The supplier bargaining position is rather weak. There are about 400 component
manufacturers in Vietnam (MOIT, 2015). A majority of supporting companies are small to
medium enterprises, only being able to meet 10-15% domestic demand (The Saigon Times,
2016). Most of the products are basic such as mirrors, seats, batteries and plastic parts. To
compound the difficulty, the import tax for auto parts has remained persistently low,
incentivizing manufacturers to procure overseas instead of locally.
ii. Buyer Power
Consumers wield low to moderate purchasing power. Given GDP per capita of $2,111 USD
(World Bank, 2015) and the average car price of $20,000 USD, automobiles remain out of reach
for most of the population. In addition, Vietnamese drivers are subjected to various expenses,
including registration fee and insurance premium. On the other hand, consumer position derive
strengths from the fairly standardized nature of automobiles and the low switching cost among
competing brands.
iii. Threats of New Entry
The industry is relatively insulated from new entry. As a capital-intensive and technology-
driven industry, auto is historically and remains a restricted sector. To break even, any auto
companies need to reach certain economies of scale.
iv. Threats of Substitution
The threat of substitution is significantly high; not only customers switch to other brands but
also choose alternative transport modes. In Vietnam, the most common transportation of
choice is motorbike. In 2016, motorbike sales were 3.12 million units, 10 times greater than that
of automobile (VAMM, 2016). Two-wheelers also have very low switching cost and price.
v. Competitive Rivalry
The internal competition level is intense. During the final months of 2016, Truong Hai (Kia and
Mazda) initiated aggressive price cuts, continuously offering price discount to customers. For
the first time, Toyota lowered the retailer price of Altis. Honda, Ford, Chevrolet and Nissan also
adopted similar price reduction policy.

5
Vietnam Auto Industry in 2016 v1 18-04-2017
 Increasing competition is also evidenced by the rapid launching of new models. For example,
Toyota recently introduced the new version of Innova and Fortuner, as well as an upgrade
model of Camry. Ford brought in Explorer while Mitsubishi added Outlander and Pajero Sport.

5. Drivers and Barriers

The auto industry of Vietnam is driven by the low penetration rate, demographics golden age,
expanding middle class and improved infrastructure. The vehicle penetration of Vietnam is still under
50 vehicles/ 1,000 citizens, compared to Thailands 250 and Malaysias 400 (IPSI, 2016). In addition, the
demographics golden age is expected to last until 2030; GDP per capita is projected to rise from $2,111
USD to $3,000 USD by 2020. Vietnam is going to invest heavily in the North-South expressway and the
national highway network, which will facilitate travelling by automobiles.

On the other hand, the industry growth is impeded by the underdeveloped component industry, the
upcoming 0% import tax for ASEAN cars, and rather small market size. The component sector is
already discussed in Section 4.2.i. Supplier Power; the import tax will be discussed in Section 8.
Outlook. Regarding market size, While Vietnam records annual sales of over 300,000 units, the figure
pales in comparison with other markets in South East Asia. Vietnam market is also fragmented; only two
top manufacturers booked sales of more than 50,000 units. To operating efficiently, it is estimated that
an assembly line should produce at least 200,000 units yearly (Takimoto Koji/ JETRO, 2016).

6. Supply chain
Auto global value chain

Source: UNIDO, 2003

6
Vietnam Auto Industry in 2016 v1 18-04-2017
Across the global value chain, Vietnam is involved in assembly, setting up joint ventures with foreign
auto firms, e.g. Thanh Cong - Hyundai, Thaco - Mazda & Kia. In addition, Vietnam companies mainly
serve as third-tier suppliers and in the aftermarket. The fact that Vietnam being unable to penetrate into
higher value-added chain is not entirely of its doing. In reality, there is a global trend for using the same
suppliers in different locations, i.e. follow sourcing, which hampers the growth of local component
manufacturers (UNIDO, 2003).

7. Regulation
In 2014, the government adopted a plan to build the auto sector into an important industry of
Vietnam, able to meet domestic demand; the component industry shall be competitive, capable of
integrating into the global value chain (Decision 1168/Q- TTg). For passenger cars, the priority is given
to small cars which consumes less fuel and are suitable to the existing infrastructure. Vietnam aims to
self-produce crucial components like transmission, gearbox, engine and body; establish industrial
clusters to advance cooperation between assemblers and component manufacturers.

In the auto industry, the current policy mix is seen as relatively comprehensive but its execution is
highly inefficient. The biggest shortfall is inconsistency, i.e. too many ministries are involved in
regulation, polices are often conflicting from one period to another. Manufacturers also call for greater
detail-orientation, transparency and predictability. In the process of policy formulation, there should be
a longer consultative times; for policies that affect manufacturers directly, an appropriate and specific
execution pathway is necessary.

8. Outlook
In terms of sales, the market is expected to continue posting double-digit growth; growth engines are
already discussed in Section 5. Drivers and Barriers.

However, the domestic manufacturing industry will be put to a serious test in 2018, when the import
tax for ASEAN cars reduces to 0%. It is believed that the decision to open the auto market is premature
since Vietnam has not reached the necessary economies of scale. Given the new tax, the most likely
scenario is that only major manufacturers will continue assemble the models that still yield comparative
advantage; others will switch to CBU import. In fact, Fortuner, the SUV line of Toyota, is already
imported from Indonesia after years of local assemble. Civic, the first domestic car of Honda in Vietnam,
is now shipped from Thailand.

7
Vietnam Auto Industry in 2016 v1 18-04-2017
9. Appendix
European car classification:

A mini cars: a majority of minicars are hatchback, whose car length is under 3,400 mm. Engine
displacement is commonly under 1.25 liters, which are suitable for female drivers or first-time
buyers. Price range is from 300 to 500 million VND. Examples: Kia Morning, Chevrolet Spark,
Hyundai Grand I, Daewoo Matiz and Fiat500.
B small cars: is also common among female drivers. The total length should not exceed 3,900
mm; engine displacement is between 1.4 1.6 liters. Price range is from 500 to 650 million VND.
Example: Toyota Vios, Honda City, Mazda2 sedan, Ford Fiesta sedan, Hyundai Accent, Nissan
Sunny, Mitsubishi Attrage (sedan); Toyota Yaris, Suzuki Swift, Ford Fiesta hatchback, Mazda2
hatchback, Kia Rio hatchback, Mitsubishi Mirage (hatchback).
C medium cars: car length is from 4,250 mm to 4,500 mm; engine displacement is within 1.4
2.2 liters, or even up to 2.5 liters. Thanks to its reasonable price and specification, C-segment is
the most popular car group. Price range is from 600 million to 1 billion VND. Example: Toyota
Corolla Altis, Mazda3, Honda Civic, Ford Focus, Hyundai Elantra, Kia K3, Chevrolet Cruze (sedan);
Ford Focus hatchback, Mazda3 hatchback (hatchback).
D large cars: car length is between 4,700 4,800mm; engine displacement is 2.5 3.5 liters;
price range is from 900 million to 1.5 billion VND. D-segment vehicles are better-equipped, more
spacious and comfortable for passengers. Example: Toyota Camry, Honda Accord, Mazda6,
Hyundai Sonata, Kia Optima, Peugeot 508.
E executive cars: Size wise, there are not much difference between D and E-segment.
However, E-segment has much more sophisticated design and is better-equipped. Example:
Mercedes-Benz C-Class, Audi A3, A4, BMW 3-Series, Lexus IS
F luxury cars: F-segment is categorized into 3 subgroups: mid-high end (e.g. Mercedes-Benz E-
Class, BMW 5-Series, Audi A6), high-end (Mercedes-Benz S-Class, Audi A8, BMW 7-Series, Lexus
LS) and ultra-luxury (Maybach, Rolls-Royce, Bentley).
J sport utility vehicles (SUV): Globally, SUVs have become increasingly popular, trailing only
behind the C-segment. Vehicles come in all variety of sizes and convenience levels. Example:
Ford EcoSport, Honda CR-V va Mazda CX-5, Toyota Fortuner, Ford Everest, Hyundai SantaFe,
Toyota Highlander, Mazda CX-9 (low to mid-end); Audi Q3, BMW X1, Mercedes-Benz GLA, Audi

8
Vietnam Auto Industry in 2016 v1 18-04-2017
 Q5, BMW X3, Mercedes-Benz GLC, Lexus RX, Audi Q7, BMW X5, Mercedes-Benz ML, Lexus LX,
Porsche Cayenne (high-end).
M multipurpose vehicles (MPV): MPVs typically carry 7-8 passengers; spacious trunk; foldable
seating. Its ground clearance is usually lower than SUVs; the design is softer than SUVs.
Example: Toyota Innova, Suzuki Ertiga, Kia Rondo, Mitsubishi Grandis, Mazda Premacy
S sport cars: S-segment may have 2 doors or sometimes 4 doors. Roadsters, convertibles and
supercars fall into this category. Example: BMW 6-Series Grand Coupe, Audi TT, Mercedes-Benz
CLK, Mazda MX-5 (coupe); Ferrari LaFerrari, Porsche 911, McLaren P1 (supercar).

9
Vietnam Auto Industry in 2016 v1 18-04-2017