HO CHI MINH CITY
My and her boyfriend, Le, have just finished dining at one of Ho Chi Minh City's fashionable restaurants. She waits while he goes to the guarded parking lot and returns with the wheels, his mobile phone never leaving his ear as he chats. This is not easy because the wheels are a moped.
Eleven automakers have crowded into this impoverished nation, hanging on in hope that the growing population will gain enough income to move from mopeds to cars. The latest flurry of optimism comes from United States President Bill Clinton's first tour of duty in Vietnam, scheduled for mid-November.
Clinton's visit most likely will include a motorcade. But most Vietnamese never have sat in a car. They rely on two-wheeled transport to an extent that surpasses anywhere else, even in Indochina. One gets blase about the loads carried on a motorcycle, which could include a refrigerator, a half-dozen car tires, a wife and children.
But change is in the wind. Vehicle sales are running 52 percent ahead of last year. What Vietnamese need, as one sees when flying over the delta of the flood-swollen Mekong River, is boats. What they get is motorcycles. But what they dream of is cars.
Clinton's visit - including a major trade entourage - will undoubtedly stimulate investment in infrastructure. It is meant in part to boost the trade agreement signed this summer, which would give Vietnam normal trading partner status with the United States. The deal must still be approved by the U.S. Congress. Still, it is seen as a vote of confidence for the nation, which also is seeking membership in the World Trade Organization.
FLOCKING TO HANOI
In the weeks immediately before the trip, the capital, Hanoi, was virtually impassable as Japan, Germany, Italy, Australia and others arrived with relentless armies of ministers. ('At least it's good for the hotel industry,' growled one inconvenienced expatriate.) Meanwhile, the carmakers already huddled in Vietnam waited to see if, at last, the much-touted market surge might happen.
Vietnam's communist regime tempted automakers in the early 1990s with promises of a license to assemble vehicles. Just four would be granted, promised the ministry. That grew to 14, 11 of which still are operating.
Capacity in the country is 80,000, if you believe the carmakers, or 200,000, if you believe the government. Hanoi forecast 80,000 unit sales by 2005. Although no official sales figures are kept, Mercedes-Benz counted sales last year at 14,667 units. Another automaker put the figure nearer 10,000.
Despite the minimal sales, automakers are staying in the market, encouraged by moves to open trade. It is hard for them to ignore the potential in a nation projected to have a population of nearly 100 million, as well as a burgeoning middle class, by 2015.
Toyota leads the new-car market. Its 5-year-old plant near Hanoi airport produces the Land Cruiser, a light truck called the Hiace, a variant of the Kijang MPV called the Zace, plus the Corolla and Camry. As one might expect, the plant assembles knock-down kits. But it takes an unconventional approach. Typically, CKD plants assemble vehicles whose components are imported in one big box. But Toyota's plant imports parts from all over Asia. For example, welded body sides for the Camry come from Australia, while engines for the Zace come from Indonesia.
MONEY FROM OVERSEAS
Mutsuhiko Ono, president of Toyota Motor Vietnam, has big expectations for Clinton's visit: 'It will have a big impact on the economy. Exports and inward investment will both expand, particularly with the U.S. itself. But - and this will have the greatest impact on the auto industry - remittances from Viet-Kieu will also expand.'
The Viet-Kieu - the huge number of expatriate Vietnamese, many in the United States - remit more than $2 billion per year, the country's only serious source of currency. Ono is optimistic of a sales boom once that extra money filters down: 'We have not yet seen a market surge which we had expected earlier, but the situation of the industry is getting better and is very encouraging.' Ono forecasts 30,000 units for 2005.
His counterpart at DaimlerChrysler, Joerg Neuffer, sees even more potential. Mercedes assembles small numbers of E- and C-class models, as well as trucks and buses.The German automaker expects industry sales of 43,000 in 2005, of which 27,000 would be local production. For Neuffer, Vietnam is like Brazil of the 1950s, where he grew up: 'So much potential. ...'
The corruption and red tape are another similarity. Deborah Aronson, general director of Ford Vietnam, points out that a recent survey ranks Vietnam second only to Indonesia as the world's most corrupt place to do business. 'There has to be systemic change in order for business growth to take place,' Aronson says.
Automakers complain that there are no published regulations, no transparency and no guarantees about future policy for an industry where planning takes years.
That is not entirely true. Industry vice minister Nguyen Xuan Chuan has said Vietnam would not reduce tariffs on auto imports until 2014, whatever the Association of Southeast Asian Nations free trade agreement might say. The plan calls for the abolition of tariff and nontariff barriers in 2003 across virtually all 10 members of the ASEAN - Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
Still, the authorities have a poor track record. Two years ago, says Neuffer, they introduced a luxury tax of 100 percent. There was an outcry. Now there is a five-year exemption for 95 percent of the tax.
The World Trade Organization told Hanoi to reduce its 200 percent import duty on fully built vehicles (as opposed to kits). So it did - to 60 percent. But then it slapped a series of extra taxes on them to take the total to 210 percent.
Imports last year formed more than half of new-vehicle sales at 7,700 units. But state-owned enterprises and well-connected individuals, not automakers, do the importing because they can get the license.
For all of the obstacles, automakers believe that broader car ownership will be a vital element in the country's transition - if it makes it - to an industrialized economy. Meanwhile, in rural areas peasants still haul loads of newly milled rice on bicycles.
While auto sales creep upward, Vietnam has become the third-largest motorcycle market in the world - a nation of 80 million people who cannot stay on one side of the road. Takeshita Nakajima, director general of Honda, which rules the domestic market, measures growth in terms of people per motorcycle: 'Here there are 14 or 15 people per motorcycle, while in Thailand there are five. So there is some way to go before there is mass substitution for cars.'
That could start to happen, he believes, when per capita income hits $1,000. Last year, it was $331.
The Vietnamese market could total one million motorcycles a decade from now, forecasts Nakajima. Those buying their first vehicle often choose an old used truck, usually brought in from Korea or Russia. But things change. The trade deal with the United States seems to have persuaded many Vietnamese to start spending, Toyota's Ono says. Toyota, which set up dealerships in Vietnam long before it had a factory, is well known as a premium brand.
KOREANS GRAB SHARE
But Kia and Daewoo are trying to establish a market niche with extra-low prices. Daewoo's little Matiz, a three-cylinder hatchback, is popular in Ho Chi Minh City. Kia sells a version of the Pride as a taxi. Between them, the two Koreans accounted for 44 percent of car sales in Vietnam for the first eight months of this year. Meanwhile, Toyota maintains a market share of 27 percent. Are the Koreans buying market share? 'Maybe,' says Ono.
Many visitors are amazed at the lack of residual ill feelings about the Vietnam War, but 80 percent of Vietnam's population is 30 or younger. One can visit the Cu Chi maze, 250 kilometers of tunnels dug by guerillas under the region north of Ho Chi Minh City. Once used to evade American troops, the tunnels are a tourist attraction. After the tour, visitors can fire real AK 47 automatic rifles on a range. Ford's Aronson reckons there could be six million Vietnamese with money to spend on a car within a decade. She is confident American brands are no barrier.
'Live in a French house, marry a Japanese wife, eat Chinese food and drive an American car,' is a Vietnamese definition of success. Ford, anxious to engage aspiring teen-agers, has developed an electric bicycle specially for Vietnam. It costs $700, so there is no plan to mass-market it. On the other hand, Ford sold 11 in two hours during the bike's Hanoi launch in October.
The lack of suppliers is a significant problem for automakers. The Vietnamese government estimates Toyota's local content at just 12 percent. But suppliers cannot be persuaded to invest without assurances of more sales volume or, vitally, exports.
Last year, vice minister Chuan predicted a shakeout of the remaining 11 automotive joint ventures. He predicted that only Toyota, Mitsubishi, Ford and possibly Daewoo would survive. But it now looks as if Mitsubishi may close, probably to be replaced by Hyundai production in the Mercedes plant. Ford's Aronson suggests that four assemblers could produce as many as 20 brands.
Either way, such concentration would create a slightly better climate for the suppliers. But as Toyota's Ono points out, the iron, steel and chemical industries are not developed.
No one expects Vietnam's auto market to blossom quickly. Indeed, until the country has more roads, a large vehicle population would be murderous. But Clinton's visit is sure to stimulate the economy, bringing reforms with trade provisos.
Maybe all sides should take heart from the October launch of OTO xe may, Vietnam's first fledgling motoring magazine - even if, true to form, it needs a state permit to publish, and few of its journalists have a driver's license. ANI
You can e-mail writer John Boley at [email protected]