Boston, MA -- (SBWIRE) -- 06/12/2013 -- Although 2012 sales of VAMA members contracted by 27.0%, we see many signs for optimism in 2013. We forecast VAMA members' sales to grow 6.7% in 2013, to hit 86,000 units on the back of the recent reduction in motoring fees as well as recent policy rate cuts by the State Bank of Vietnam (SBV). Total auto sales for the first two months of 2013 came in at 11,042 units, up 6% from 10,423 units in the same period last year. Indeed the decent start to 2013, makes us confident on the prospects for the industry. We see the trend in credit easing continuing, which will in turn improve auto sales in the coming months (see, 'Easing Credit Poised To Lift Auto Sales', February 26).

While 2012 was a bad year for auto sales in general, due to Vietnam's banking sector reforms, we believe it was worsened by the government's introduction of fees and taxes to control road congestion. This dissuaded potential buyers from making purchases due to tight credit conditions and onerous fees.

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Although the SBV has been showing its intention to support economic growth through its rate cuts recently, our Country Risk team has downgraded its real GDP growth forecast for 2013 to 6.3% from 7.0% previously, as Q113 shows a wobbly start. This has been partly due to banking reforms taking longer than expected. Nonetheless, we are maintaining our 2013 auto sales growth forecast of 6.7% as we believe it is conservative and easing monetary conditions would slowly improve credit growth in the latter half of the year.

Furthermore, BMI expect things to improve in the medium-to-long term on the back of impending banking sector reforms, improving macroeconomic outlook and potential benefits to Vietnam from the formation of the ASEAN Economic Community (AEC) by 2015.

As such, we forecast average annual vehicle sales growth of 6.7% over the 2013-17 period, to surpass 110,000 units by 2017.

Despite this outlook, we warn that a lot needs to be done in terms of policy changes to make Vietnam an attractive market for autos-related investment in the Asia-Pacific region. Although the government has tried to increase domestic production in the industry, in particular by raising import tariffs on vehicles, there has been little in the way of rewards for companies which have chosen to invest. This is reflected in the 'rewards' section of BMI's industry Risk/Reward ratings for the autos sector in Asia, where Vietnam scores far below its neighbours in terms of the industry rewards on offer.

As such, we maintain our pessimistic outlook for the production segment and forecast a small increase of 3.0% in output in 2012. For the remainder of our forecast period to 2017, we remain bearish on the back of a March 2012 report produced by Vietnam's Chamber of Commerce and Industry (CCI), highlighting structural weaknesses in the country's auto sector and the ongoing threats to the demand side of the industry.

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