Auto market sinks due to car importers’ mistakes
The massive number of cars imported in early 2008 has made the market sink with 15,000 imported cars left unsold.
Sources say that some 15,000 imported cars still cannot find buyers, and if every unit has the taxable value of $20,000 on average, $300mil is ‘buried’ in car import deals.
Why did enterprises import so many cars? Experts say that car importers made four key mistakes.
Firstly, enterprises seemed to make wrong forecasts about the demand of the market. They should have realised that the market would cool down after a long time of heating up in late 2007 and early 2008, and should not have imported so many cars.
On November 16, 2007, the decision by the Ministry of Finance to slash the import tax from 70% to 60% opened the new strong development period of the import car market. From November 2007 to March 2008, car imports increased continuously with 1,000 imported cars a month.
The Ministry of Finance later decided to reassign the 70% tax rate on car imports in order to restrain luxury imports and curb inflation. However, the ministry’s move did not help subdue the excitement of enterprises, who still tried to import more cars in the hope of getting more money.
The ministry then decided to raise the tax once more to 83%, which prompted car importers to rush to import cars on a massive scale before the new tax scheme went into effect. The imports resulted in oversupply, especially as the market began cooling down.
The second mistake car importers made was that they did not anticipate the impacts of the stock market, bank credit and foreign currency exchange rates on the car market.
The rise of the stock market in 2006 helped make the car market more bustling, while the falls of the stock market in 2008 have caused the slide of the car market. In 2006, a lot of stock investors, who got big money from investment deals, rushed to buy cars. Meanwhile, in 2008 the falls of the market have been keeping investors away from luxury things.
It is clear that when banks tighten credit, the car market has no way to develop. Though a lot of people still want to buy cars, their demand cannot be satisfied as banks have been trying to limit consumer credit.
The revaluation of the dollar in Vietnam has been worsening the problems of car importers as this has made imported cars more expensive.
The third mistake the car importers made was that they did not successfully predict state policies. One should anticipate that the government may take some actions to deal with the high trade deficit and high inflation, and raising taxes to limit imports would be the most likely measure.
And finally, a lot of enterprises imported cars in the last time just to follow other enterprises. They should understand that Vietnam remains a small market with low income consumers, and cars are still considered a luxury product, the consumption of which is not encouraged. Such a small market would never be able to provide a cake big enough for many businesses.
VNN
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