New Transportation market report from Business Monitor International: "Vietnam Autos Report Q1 2014"

Boston, MA -- (SBWire) -- 12/06/2013 --Vehicle sales Vietnam in September rose 20.6% year-on-year (y-o-y), to 8,465 units, according to the Vietnam Automobile Manufacturers Association (VAMA). Although we have maintained for some time that sales in the passenger car segment will outperform the commercial vehicle (CV) segment, the divergence between the two segments has become even starker. While 9M13 passenger car sales grew 40.0% y-o-y, to 39,761 units, CV sales remains roughly unchanged at 26,125 units (this comparison excludes sales from Mercedes-Benz).

We are happy to maintain our 2013 CV sales growth forecast at 4.0%, to 37,000 units. However, we acknowledge the fact that growth in passenger car sales continues to exceed our bullish forecast and once again, we intend to upgrade our forecast as we expect car sales to register a strong finish for the full year. We are upgrading our car sales growth forecast to 22.2%, to 53,000 units, from 12.5% previously. This will then bring our 2013 vehicle sales growth forecast to 14.0%, to 90,000 units.

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In line with our view, the series of interest rate cuts enacted by the central bank over the past year continues to ease credit in the economy and lower borrowing costs for both consumers and businesses. As lending rates have come down in tandem with the cuts in the State Bank of Vietnam's policy rates, borrowing costs for vehicle buyers have been lowered. Additionally, the cut in car registration fees by the Vietnamese government has acted as a tailwind for passenger car sales by further boosting consumer demand.

However, the contrasting fortunes of the segments demonstrate to us that consumers have taken greater advantage of the lower borrowing rates compared with businesses. We believe that the ongoing banking sector reforms, as well as the restructuring of state owned enterprises (SOEs), could have dented business confidence resulting in the corporate sector retrenching in the short term. This, would then, have had the effect of dampening demand for CVs.

However, there is cause for optimism with vehicle production posting strong y-o-y growth rates in recent months after being on a downtrend since 2010. This chimes with the trend of rising foreign direct investment (FDI) into Vietnam. Our Country Risk team believes that FDI inflows will continue growing in the coming years due to the country's strong growth potential.

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