With a population of over 80 mio. Vietnam is an attractive market in the ASEAN region. Although GDP-growth rates are impressive (7,6% between 2000 and 2007), with a GDP per capita of 833 USD and an average annual income of 536 USD, Vietnam is still a poor country. It is only a small fraction of the Vietnamese population who can think of buying a car at all.

Vietnam’s automotive industry is one of the youngest in the region. Local assembling of cars started at the end of the last century and the automotive market has been open for imports of new cars on a larger scale only since 2003. Used cars to a certain age maximum are allowed for import only since 2006. Hence, Vietnam’s car penetration is one of the lowest in the world, behind all other ASEAN countries as well as India and China. Because of this recent opening, the car parc in Vietnam is very young.

The car market is characterized through very high prices which developed in a phase when the Vietnamese government wanted to develop the local automotive industry through protection measures like an import licencing scheme and high customs duties on CBUs. In addition, various taxes and fees applicable when buying new cars, like the special consumption tax of 50%, increase cost substantially.

Notwithstanding the low average income and the very high car prices, the passenger car market is booming since 2007, when new registrations doubled. Both locally assembled and imported cars are in high demand. For certain locally assembled models there are waiting lists for about 10 month. We expect further growth of about 35% annually until 2010.

The Vietnamese governments latest plans regarding import licences, tariffs, taxes and registration fees are a major factor of uncertainty. While WTO and AFTA memberships will eventually open up the markets and lower tariffs and taxes – and the Vietnamese government initially seemed to fulfill demands earlier as expected – today all moves are aiming at closing up the market again. With more liberal regulations, the car market in Vietnam might grow much faster than our estimate of 17%.

The distribution structure for new cars is currently shifting to a more organized form OEMs with an assembling joint venture in Vietnam will organize distribution through these joint ventures. This was made possible after these foreign invested joint ventures were granted import licences for new cars. Other OEMs without an investment in a manufacturing presence also nominate official distributors. Until today, the market for models not assembled in Vietnam was dominated by grey importers and dealers. They will have a hard standing in the future and are expected to focus on special models the official distributors are not selling in Vietnam as well as on used cars.

Financing of cars is just developing, with loans being the preferred method of financing. In a market with very high prices, car financing has a high potential.

Vietnam has no own passenger car brand. There are several OEMs active in Vietnam, mostly through manufacturing joint ventures with state-owned companies. Although the market is growing strongly, it is still too small for each manufacturing operation to reach efficiency. This is one reason why prices are still very high in Vietnam. Vietnam is not used as a manufacturing hub in ASEAN or Asia in general. Other countries like Malaysia or Thailand are in a better position in this respect. Operations in Vietnam were set-up to enter the local market, since import of new cars was not allowed for several years. The Vietnamese government wants to develop the automotive industry but local assembling operations – at least with foreign investment – have failed to generate a high localization rate. One reason is the limited supplier structure in Vietnam.

In line with the size of the car parc, the aftermarket is still small. However, it is growing by over 20% p.a. over the next years to 2010. Growth of the aftermarket is driven by the growth in car sales and the aging of the still very young car parc. The distribution system for spare parts is just forming. There is no dominating or even larger independent player in a market, where quality is a big issue for customers who can afford and are willing to buy a car at the current price level.

In total, the car market as well as the aftermarket are both attractive because of high growth rates and a large potential market of over 80 mio. Vietnamese. However, the market is still too small to justify large scale investments just to serve the domestic market. With further opening of the local market, which will happen in line with WTO and AFTA agreements, using Vietnam as a manufacturing base for exports will be more feasible.

The major risk in Vietnam is the government’s policy with respect to the automotive industry. The Vietnamese government is torn between opening up the market so as to allow more competition and to eventually lower prices for customers and the wish to protect the local automotive industry and to limit the expansion of the car parc which is leading to traffic jams due to a lack in infrastructure. Due to this lack in overall strategy, there are rather erratic jumps in tariffs and other taxes and fees levied on the import or purchase of CBUs, CDKs and parts. Hence, Long-term planning is difficult and one needs to think in scenarios.

To prepare this market report, we used primary and secondary research methods – expert interviews and consumer surveys – in particular for the market of automotive parts, which is not covered yet by any substantial statistical data – and standard analysis of secondary information available on the topic. Based on our experience and developed competencies we have built proprietary market models to forecast future market development. The report was compiled in the period from March 2008 to July 2008 and hence includes statistical data until June 2008, if available.

For a table of content and a list of figures and tables see the attached document.

The report contains 79 pages and is priced at a discount at 250 EUR. To order the report “Vietnamese Automotive Market: Passenger Cars, Components & Spare Parts 2008 – 2010”, please contact us at +49 (0)30 4005 49 0 or at marktforschung(a)globis-berlin.de.

Globis is a Germany-based consulting company with broad international coverage regarding strategy development, especially entry strategies into new markets.

Table of Content Vietnamese Automotive Market: Passenger Cars, Components & Spare Parts 2008 – 2010

TABLE OF CONTENTS 2

LIST OF FIGURES 5

LIST OF TABLES 7

1. SUMMARY 9

1. COUNTRY BASICS 12

1.1. Economic Development 14

1.2. Regional Economic Development 18

1.3. Vietnam, ASEAN and AFTA 19

2. VIETNAMESE PASSENGER CAR MARKET 21

2.1. Vietnamese Car Parc 21

2.1.1. Structure of Car Parc by Age 22

2.1.2. Structure of Car Parc by Brands and Models 24

2.1.3. Car Parc in Regional Markets 26

2.2. Passenger Car Sales and Imports 27

2.2.1. Size of Market 27

2.2.2. Market Characteristics New Cars Market 31

2.2.3. Sales Drivers for New Cars 36

2.2.3.1. Economic Growth and Income Levels 37

2.2.3.2. Used Car Imports 37

2.2.3.3. Changing regulatory environment 38

2.2.3.4. Car Financing 41

2.2.3.5. Dealership Networks / Distribution Systems 42

2.2.3.6. Consumer preferences 45

3. VIETNAMESE COMPONENTS AND SPARE PARTS MARKET 47

3.1. The Vietnamese Automotive Industry 47

3.2. Car Production and Components Market 50

3.2.1. Production 50

3.2.2. Components Market and Vietnamese Supplier 53

3.3. Vietnamese Aftermarket 59

3.3.1. Market Segments Aftermarket (OE, IAM, Fakes) 59

3.3.2. Market Size Aftermarket 61

3.3.3. Distribution System for Spare Parts 64

3.3.3.1. Parts Importers and Distributors 66

3.3.3.2. Spare Part Shops 67

3.3.3.3. Service Stations 67

3.3.3.4. Other Supply Channels 69

4. OPPORTUNITIES AND RISKS 70

5. APPENDICES 72

5.1. Vietnamese Provinces 72

5.2. Districts and Provinces 76

5.3. Major Vietnamese Cities 77

5.4. Regulations and Fees for Car Imports 79

5.5. Sales of Foreign Brands in Vietnam, 2005-2007 80

6. ABBREVIATIONS 81

List of Figures

Figure 1: Vietnamese Federal Districts 11

Figure 2: GDP Growth Rates at Constant Prices, 2000-2010 13

Figure 3: Development of Average Annual Wages, in USD, 2006-2010 14

Figure 4: Inflation Rates 2002-2008 15

Figure 5: Development of Passenger Car Parc, in 1.000 units, 2000-2010 18

Figure 6: Passenger Car Penetration in Selected Asian Countries, in Cars / 1.000, 2007 19

Figure 7: Structure of Vietnamese Car Parc by Age, 2007 20

Figure 8: Top Brands in Vietnamese Car Parc, 2007 22

Figure 9: Sale of New Passenger Cars in Vietnam, in 1.000, 2000-2010 25

Figure 10: Import of New and Used Cars into Vietnam, in 1.000 Units, 2000-2010 26

Figure 11: Relative Sales and Import Structure of Car Market, 2000-2010 27

Figure 12: New Car Sales (Locally Manufactured) by Segment, 2007 32

Figure 13: New Car Sales by Typ of Engine, 2005-2007 33

Figure 14: Share of Financing Arrangements for New Car Purchase, 2007 39

Figure 15: Key Criteria Influencing Car Choice in Vietnam, 2007 43

Figure 16: Development of Production Volume, in 1.000 units, 2005-2010 49

Figure 17: Share of OE-, IAM-, Fake-, Used-Parts for Routine Service, 2007 57

Figure 18: Size and Development of Aftermarket, EUR mio., 2007-2010 60

Figure 19: Development of Aftermarket for Important Spare Parts, EUR mio., 2007-2010 61

Figure 20: Main Distribution Channels for Spare Part Distribution to Car Holders, 2007 62

Figure 21: Shares of Spare Parts Sales Channels for Non-OE, 2007 63

List of Tables

Table 2: Population Development Overall and in Major Cities, in 1.000, 2002-2007 . 12

Table 3: GDP of Key Economic Regions in Vietnam, 2007 16

Table 4: Economic Key Figures ASEAN / Vietnam, 2006 / 2007 17

Table 5: Most Popular Models by Top 5 Brands in Vietnamese Car Park, 2006/2007 22

Table 6: Regional Car Parks by Number of Vehicle and Car Penetration, 2007 24

Table 7: Sales and Import Structure of Car Park, in Units, 2000-2010 28

Table 8: Top Selling Passenger Car Brands (New, Manufactured Locally), 2006-2007 29

Table 9: Sales by Manufacturer, January-May 2008 31

Table 10: Top Selling Models (New Cars), 2006-2007 32

Table 11: Dealership and Service Networks of OEMs in Vietnam, 2007 41

Table 12: Automobile Assembling Joint Ventures with Foreign Investment, 2007 46

Table 13: Production Volume of Local Assemblers in Vietnam, in 2005-2007 48

Table 14: Local Content Rates of Foreign Brand Manufacturers 51

Table 15: Major Parts and Component Suppliers and Service Providers of Vietnamese Origin 53

Table 16: Major Component Suppliers and Service Providers in Vietnam 56

Table 17: Largest Independent Importers and Distributors of Spare Parts 64

Table 18: Major Independent Service Stations, 2007 66

Table 19: Vietnamese Regions by Inhabitants and Population Density 72

Table 20: Vietnamese Districts and Regions 73

Table 21: Vietnamese Cities over 100.000, 2007 75

Table 22: Customs Duty for Used Car Imports, 2007 76

Table 23: Sales of Foreign Brands, in Units, 2005-2007 77