Double V: Vietnam and Vehicles

VEHICLES IN THE RIDE-HAILING PILOT PROGRAM IN HCMC. SOURCE: HCMC DEPARTMENT OF TRANSPORTATION

I started thinking about vehicles and Vietnam because I saw this story about Go-Viet launching a ride-hailing app in Ho Chi Minh City (HCMC). There was a bit of data about how many vehicles are in this test pilot, which really seems more like a full fledged market than a test pilot at this point. It’s a full court press on ride-hailing, given that are more than 40,000 vehicles in the “pilot.”

There are four companies that are part of it, including Grab, a company that had bought Uber’s Southeast operations. It appears to have the largest share of the market, with more than 23,000 cars at the end of 2017. It recently went through a big court case, where it was fined for hurting the business of Vinasun, a taxi company. That fine (for just over USD200k) was later cancelled by a higher court ruling. And it now faces anti-trust concerns over its market share.

So, I found it interesting that all these ride-hailing companies are ramping up in HCMC, where public transport is not great. I also have been reading stories (like this and this) from early this year that the city was thinking about banning motorbikes in the city center. That just seems crazy to me, and it seems crazy to people. From the first story:

However, transport expert Nguyen Xuan Thuy said the plan to ban motorbikes from entering the downtown area was inappropriate as the country has some 45 million motorcycles and 4 million automobiles. Although there are more than 10 times as many motorbikes as cars, a motorbike occupies between one fifth and one tenth of the road surface area used by a car.

VEHICLE SALES IN VIETNAM, SOURCE; VAMA AND OICA

In terms of pollution, space and just sheer numbers, it is just impossible to consider motorbikes would be banned. This is in a city that doesn’t have a metro (although the city is shooting for a 2020 opening) and buses ain’t great.

This led me to wonder where Vietnam was in terms of car use. The numbers were actually pretty easy to find (this is a place where Vietnamese statistics appear to be pretty good, although a bit confusing at times) through the Vietnam Automobile Manufacturers’ Association (VAMA) and the International Organization of Motor Vehicle Manufacturers (OICA, initials taken from the French name, as per all good international organizations and terrorist groups).

VIETNAM IS AT THE START OF VEHICLE SALES, BUT AS IT GROWS RICHER, WE SHOULD SEE MANY MORE CARS SOLD. SOURCE: OICA, VAMA, WORLD BANK, VIETECON.COM ESTIMATES

The numbers have grown a lot, but seem to have plateaued a bit starting in 2016. Mostly that has to do with tariffs and regulations. Supposedly, people in 2017 were waiting for ASEAN tariffs to be phased out on Jan. 1, 2018, and then in 2018, right at the beginning of the year, the government required some new documentation on imports of cars, which meant that no imported cars were sold in January and February. Imports didn’t restart until March. To give an idea of the impact, total imports fell 6.2% in 2018 but total car sales grew 5.8%, with the difference from cars assembled (from kits, usually) in Vietnam.

The reason for the new regulation is to build an auto manufacturing business in Vietnam. The government’s goal is for its auto industry to source 35% to 40% of components domestically by 2020, up from about 10% now (sub req’d). VinFast is the first local-only car manufacturer, and by 2025 it aims to produce up to 500,000 cars a year with 60% of parts locally sourced. That would mean not only significant market share in the Vietnam market (in 2018 Toyota had 24% share), but also exports.

The reason why people generally are excited about Vietnamese car sales is because it is at the beginning of likely enormous growth in vehicle sales. As Vietnam grows incomes (and the government is expecting more than 6% real GDP growth in each of the next two years or around 10% nominal growth). That combined with pent-up demand caused by these new importing rules could mean a lot of cars sold over time, if importers can work out the documentation or companies produce more domestically.

Let me put my cards on the table here: I believe that car sales are going to start growing again very quickly, because they have artificially been constrained. Yet, I personally would hate to see that. Cars are great, don’t get me wrong. But the infrastructure in Vietnam is not there! And it doesn’t look like it is going to be there anytime soon. Motorbikes aren’t great, but they are probably better for the environment on balance (although Mythbusters says maybe not), and they definitely are better for congestion than having the same amount of cars.

I would prefer lots more public transport. Buses, scooters (preferably both electric), subways and trams. All these would be much better for the environment, for congestion, for the pleasure of getting around. And then high congestion charges on trucks, slightly lower ones on cars, and even lower ones for motorbikes. Of course people love cars for a reason - they provide more freedom than any of these alternatives. Americans love the dream of the open road, look at all the movies.

While I am not generally a fan of the ride sharing companies (I am just unsure about the economics and generally side with Izabella Kaminska at FT Alphaville), I could see them as an important part of the public transport mix, so the “test pilot” figures may be a smart component of this.

It will be interesting to see what happens in HCMC, which already has congestion issues. The government seems like it is testing out a few things that hopefully it will back away from. I just can’t wait to ride the metro in 2020!