Car prices plummet from large Inventories

(ĐTTCO) - Since the beginning of the year, prices of imported and assembled cars have been dropping sharply. However, this situation is greatly expected to reverse towards the end of the year, as car manufacturers may increase prices once again as soon as inventories reduce.

A large number of cars imported from 2019 are now in the Vietnamese market.

A large number of cars imported from 2019 are now in the Vietnamese market.

Supply greater than demand

After Tet Lunar New Year, sales of cars have been on the decline and volume of inventory has been growing, creating difficulties for both car manufacturers as well as car dealers. The Vietnam Automobile Manufacturers Association (VAMA) said that the total sales at VAMA in the first quarter reached only 50,009 vehicles, down 33% compared to the same period in 2019. This is also the lowest sales volume in the last five years in the automotive market. A report released by the Ministry of Industry and Trade highlights an alarming situation where the inventory index of the motor vehicle manufacturing industry in the first quarter increased by 122.5%, compared to the same period in 2019.

Though the automobile market has entered its second quarter, many car dealers are still dealing in models produced in 2019, or even offering some 2018 models. The reason for the current price drop can be attributed to more supply than demand, which means that the automakers are still maintaining same level of production as before, but the demand for car ownership has not risen in comparison. This has resulted in a large number of unsold cars on the inventory. Hence car manufacturers are looking at ways to lower inventory, even by introducing new models in the market.

Travel demand has fallen sharply due to social distancing in the current Covid-19 pandemic situation. People do not go out on the streets much, so there is little demand for transport, making purchase of cars unnecessary. In addition, a large number of conventional cars are being sold to service car buyers, while all passenger transport activities have slowed substantially, which has affected any business expansion plans in transportation enterprises.

Reduce import of cars

Because of the unpredictability of the Covid-19 pandemic, many car manufacturers imported cars from last year in the first quarter of 2020. This caused number of imported cars to increase in volume, causing inventories to rise. According to data from the General Department of Customs, automobile businesses in March imported 12,151 vehicles, an increase of 15% compared to the previous month. Based on the number of cars supplied to the market in both imported and domestic produced cars, it is estimated that nearly 15,000 vehicles were still in stock from the first three months of 2020.

However, many car manufacturers hastily cut down on imports, as well as narrowed production scale to avoid inventory. According to preliminary statistics of the General Department of Customs, the number of imported cars decreased sharply in April to 4,918 units, equivalent to a decrease of 59.5% in volume compared to March. The value of imported cars in April decreased by USD 430 mn, equivalent to a 40% decrease compared to the previous month. This is also the lowest import volume this year.

For domestic assembled models, it can also be assumed that production scale was cut in April. Many domestic car manufacturers such as Honda, Ford, Toyota, and TC Motor suspended production during the period of social distancing during early months of this year. In addition, lack of components from international suppliers also affected operations at domestic assembly car companies.

Good time to buy car

Currently, car production and distribution activities have once again restarted but still with not enough force to revive the automobile market. Faced with this situation, VAMA forecasts that total sales will decrease by about 15% compared to the previous forecast. In order to resolve difficulties for the automobile manufacturing and trading industry, the Prime Minister recently agreed to reduce registration fees till the end of 2020 to stimulate consumer demand in the Covid-19 pandemic phase. This process is being urgently monitored by the Ministry of Finance, and all procedures will be issued soon in June, so that the stimulus will be implemented at the earliest. After an official announcement, people will save a large amount of money in registration fees, almost 5% of the value of the car.

Although a 50% reduction in registration fees for domestically manufactured and assembled cars has not yet officially taken effect, this information has caused the market to become somewhat volatile. Customers are waiting, while showrooms have cut down on promotional programs and preparing to increase prices again. Many models of domestically manufactured and assembled cars, which were discounted by showrooms since the beginning of May, have now increased their prices, though they are still being sold below manufacturer cost.

Automobile purchasing power of people began to recover in May, with more than 19,000 cars consumed, an increase of 62% compared to April. Statistics of the Vietnamese Automobile Manufacturers show that the whole market consumed 19,981 vehicles, increasing 62% compared to April, but still down 30% compared to the same period last year. Particularly, the four-seater segment in May sold 13,009 cars, an increase of 67% compared to the previous month. Number of assembled vehicles and imported cars increased by 50% and 83%, respectively. However, cumulative sales of 2020 are still bleak compared to last year. By the end of May, VAMA members sold 79,396 vehicles, down 34% compared to the same period last year and TC Motors sold 22,401 vehicles, down 24%.

Gia Linh

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