VIETNAM Interest rate reductions give auto manufacturers a lifebuoy

Interest rate reductions give auto manufacturers a lifebuoy

The bank loan interest rate reductions have made automobile manufacturers, who have been in distress because of slow sales, become as happy as a sandboy.


In a letter sent to the press some days ago, the Vietnam Automobile Manufacturers’ Association VAMA acclaimed the new decision by the State Bank of Vietnam to slash the ceiling deposit interest rate for dong to 9 percent per annum, which would indirectly lead to the lending interest rate reduction.




This means that the clients with healthy financial situation would be able to access bank loans at the interest rates of 12-13 percent, which are much lower than the 20-22 percent rates seen earlier this year.




The interest rate reduction has arrived just in the nick of time, when automobile manufacturers began feeling disappointed with the slow sales caused by the increasing taxes and fees.




In May 2012, VAMA’s members sold 6780 cars, a decrease of 32 percent in comparison with the same period of the last year and a decrease of 2 percent over the previous month.




The figures showed that despite a lot of measures applied to stimulate the demand, the purchasing power remains very weak. People have canceled their plan to buy cars in the economic crisis, especially when higher car ownership registration taxes and other kinds of taxes have been imposed on car owners.




Having put on the tenterhooks when the car sales have dropped dramatically, VAMA has many times shouted for help, while warning about the possible bad consequences that may occur if the current policies are not adjusted.




The unsalability has led to the sharp fall in the tax collection to the state budget of 6 trillion dong in the first four months of the year. With the highest ever inventories, some manufacturers have suspended production, while the auto service network has become stagnant, thus putting thousands of qualified technicians under the risk of being unemployed.




Especially, VAMA, the representative of automobile manufacturers in Vietnam, has many times blamed the unreasonable tax and fee policies on the sales decreases.




Laurent Charpentier, VAMA’s Chair many times repeated at a recent meeting, with the relevant ministries that it is the decision to raise the ownership registration tax rate to 15 percent in HCM City and 20 percent in Hanoi has pushed the automobile market into difficulties.




Besides, the attempt by the Ministry of Transport to collect road maintenance fee has “thrown more oil into the fire,” making the gloomy auto market become gloomier.




Therefore, VAMA has repeatedly asked to reduce the ownership registration tax to five percent on passenger cars and 2 percent on trucks, which should be applied throughout the country. The relevant ministries have also been urged to cancel the plan to collect the kind of fee aiming to restrict private vehicles in circulation.



The lifebuoy


While the pressing proposal had not been replied by the competent agencies, automobile manufacturers have met with good fortune. The State Bank of Vietnam, in an effort to make bank loans accessible to businesses, decided to slash the ceiling deposit interest rate from 11 percent to 9 percent.




Prior to that, since April 2012, the State Bank began taking the moves to “untie” consumer credit. In the past, funding house and car purchases was not encouraged. However, the discouragement policy has been lifted, thus turning the green light on for commercial banks to resume consumer credit.




The open credit policy and the better liquidity both can serve as the prerequisite conditions for banks to push up consumer credit. This means that people would be more easily to borrow money from banks and borrow at lower interest rates to buy cars.




Banks now lend money to fund car purchases at the interest rates of 16-18 percent per annum.

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