Elijah Ferrian gains some insight into the looming automobile influx facing Vietnam. A rising middle class and changing import tax policy looks to change the streets of Saigon forever. Photos by Vinh Dao.
Ho Chi Minh City is a place known for its traffic. Thousands of motorbikes and cars play tetris with each other at all hours of the day. For years this has been working just fine. The chaotic order of Vietnamese streets and the vehicles that transport people to and fro, while frustrating and seemingly nonsensical at times, works its magic.
However, this is all changing at a rapid pace because cars are quickly on their way to becoming king of the roads.
An Inevitable Boom – Here’s the Numbers
The auto industry in Vietnam is exploding. Market research has been looking for this uptick in car imports to continue gaining steam for the past few years, and JATO, a UK-based market analysis firm, has shown that the market grew by 27.1 percent in 2016. This makes it the second fastest growing market in the world, behind only Singapore.
By the beginning of 2017 Vietnam had already doubled its import of vehicles compared to 2016.
Why is this happening?
The single biggest driving factor for this surge in import and sales of automobiles is the reduction of tariffs due to ATIGA (Asean Trade In Goods Agreement). CBU imports (complete built unit, cars built completely out of country) will continue to see drastic reduction in the tariff. In 2016 the tariff sat at 40%, in 2017 30%, and by 2018 it will drop to 0%.
This is a huge economic boon for car manufacturers looking to increase their export of low cost models.
According to a report published by the General Department of Customs (GDC) cited by VietNamNet in January 2017, 2,600 CBU cars were imported from Thailand, worth $51.7 million, accounting for 80 percent of CBU total imports.
Vietnam also imported cars from India, a total of 1,006 products, worth $3.73 million. According to the same GDC report Vietnam spent $2.34 billion total to import 113,567 cars in 2016.
The countries that produce low cost models and export to Vietnam are Thailand, South Korea, India and China, predominantly. Vietnam’s automobile market has become one of the most attractive in the world, and the potential star for ASEAN member countries. Although Vietnam’s market is currently still the smallest, it has a vast potential for growth, boasting the fastest growing middle class in Southeast Asia.
Time will tell if Vietnam grows their auto industry to the extent that investors are hoping, but one thing is for sure, things are changing quickly and more vehicles will be on the road in record numbers.
Something Vietnam has never experienced before.
“This Isn’t Your Chu’s Saigon Anymore.”
Ed Bews is the operator of Vietnam Car Care in District 7. It’s a company he kind of helped start on accident, and it came at an ideal moment in Vietnam’s automobile history.
“Basically, back in December 2014 I was having my motorcycle cleaned.” Bews said. “I was looking at this beautiful Lamborghini being cleaned by this seventeen-year-old guy. I saw him cleaning the wheel wells with a dirty rag and then moving straight onto the paint work and just scraping it up. When I was thirteen, my first job was cleaning my neighbours cars. I sat there thinking ‘why is this guy with this amazing car paying VND50,000 for a car cleaning service?’ I started looking around and trying to find a place that does premium car care. I couldn’t find anything. That’s how Vietnam Car Care began.”
Following the three months he spent searching, he decided to find a location, put together a team, and find the right products to bring the first Western-style car care service to Ho Chi Minh City.
Bews has developed a wide array of services. He wanted to provide a car care club for a monthly fee. He provides custom wrapping, color changes with various styles of wraps, a state-of-the-art paint protection film that lasts up to 5 years, and plans to add maybe five or six other new services.
They developed specialised rooms with environmentally-friendly products and systems and immaculately clean, temperature controlled rooms with specialised lamps for state-of-the-art care care that Vietnam has never seen before.
More than anything, Bews really wants to educate the Vietnamese people on the type of car care that we’re used to in the West. They offer training and workshops. Every month they plan to offer free workshops on various car care practices like interior maintenance, caring for paint finishes and how to use the best products for your car.
“It’s harder here because of the dust and pollution, then in the rainy season you have acid rain, the rain here is a very hard water, and if you don’t remove the spots in a week they can be etched in your paint work,” Bews explains. “Many people don’t understand how to remove water spots properly, and you do not just need to clean your car. You need to protect your car. Acid rain, hard water, UV light, scratches and scrapes. These coatings are scratch resistant, and our motto is ‘protect your investment’. A car in Vietnam is the second most expensive investment after a house, so why shouldn’t you be treating it as seriously?”
This is something that is extremely intriguing about the auto industry in Vietnam: the average resale value of used cars is around 90 percent of the initial investment, and that’s after years of use. I was told one story by a local where his friend bought a new Toyota Innova for VND800,000,000, and sold it three years later for VND750,000,000. It depends on what brand the car is, and many other factors but either way that is an unheard of recuperation.
In the West, as soon as you drive a new car off of the lot, around 40 percent of the value of the car is lost.
This makes vehicles a sound investment for everyone, especially middle income families. As vehicles become more affordable, anyone looking at the numbers would have to be crazy not to purchase a car if they have the money.
From Motorbikes to Lamborghinis
The market numbers speak for themselves, but what about the car culture in Vietnam? What is driving the desire to own a car?
Take a drive on your Honda motorbike through Phu My Hung in District 7, or certain high-end areas in District 1, and it won’t be too hard to spy the odd Rolls Royce Phantom, Lamborghini Murcielago or any number of beautiful supercars and luxury sedans.
There’s no doubt that this country is wealthier than it has ever been, but the real interesting aspect comes from the middle and working class that are entering into the driving market for the first time.
Accomplishing a dream that many couldn’t previously imagine being so attainable is happening faster than the infrastructure here can even keep up.
Dao Vin Chinh, CEO of Vietnam Memory Travel, has been driving cars for eight years now. He remembers a time when he was just getting started behind the wheel, parking vehicles for his friend’s business and eventually moving his way up to providing tours for travelers – brushing up on his English along the way.
“I came to Saigon with my family.” Dao says. “They were running a business selling clothing and furniture. I finished high school in the North and came to Saigon to work with my parents. My parents missed the big family so they asked me if I wanted to stay or go back. My friend was the owner of a hotel in the backpacker area. I didn’t speak any English at the time. I worked security bringing luggage up for guests. After that a friend taught me how to drive a car for two months. His job was parking guests cars. He basically hired me to do his job. I was twenty years old.”
Now, Dao is leading his company, commanding a small fleet of drivers and cars.
“A car can become another part of a business,” says Dao. “After I borrowed money to start my company, I eventually bought a car. Then I bought more cars, and then I started hiring drivers. It’s happened very fast and I can say a lot of my business’ growth is because of my ability to drive cars.”
Dao’s company isn’t the only one seeing the growth that four-wheeled vehicles can provide for would-be entrepreneurs. Grab and Uber have completely transformed the roadways in Vietnam.
“A lot of people want to [drive] Uber or Grab now.” Dao says. “So that makes people buy more cars in this country. The car can be turned into a [multi-tiered] business. Many of my friends borrow money to buy a car to drive Uber or Grab and achieve their dream. For many Vietnamese, having a car is the dream.”
That can’t be the only reason that Vietnamese are stashing savings and borrowing from family in order to get behind the wheel of a mid-range Honda or Ford. When I asked both Dao Vin Chinh and Ed Bews this question, they both shared a piece of the puzzle.
“I’ll tell you the reason: Vietnamese think when they have a car, it shows that they have money.” Dao says. “My friends look at me different. My clients look at me different. Even if a Lexus costs USD100,000, and I can only afford to buy something cheaper, I will borrow money to buy the Lexus instead.”
Bews fills in a few gaps from his experience: “You can get a driver’s license so easily here, and with car prices being slashed each year, now leading up to 2018 where the cost of many more affordable models will become attainable for more people than ever, people want to show that they work hard and can achieve more than just a motorbike. There’s also the safety factor. As more people are educated on the hazards of the roads, driving a car is just safer.”
Growth and Change
While this is all very exciting, the reality of the situation is Saigon’s roads weren’t built to withstand this many cars packed onto the slim roadways in the city centre.
“My personal opinion about cars here is that our traffic is already difficult”, Dao explains. “Sometimes it might take you one hour to drive one kilometre. From my home in District 1 to my business next to Ben Thanh market on a motorbike it takes me five to eight minutes in normal traffic. In a car in normal traffic about 20 mins. When there’s bad traffic, it takes me over 30mins for just one kilometre. That’s not including the problem of parking.”
Dao knows that the government is trying a lot of different tactics to curb the negative effects of this rapid growth.
“They’re trying to build everything out of the city centre so that they can maybe make the roads bigger in the city so that it can make more room for cars and decrease traffic problems. That’s why you see Districts further out in from the centre being developed so quickly.”