Motor vehicles — VietEcon

As we watch Davos and the contradictory signals on climate change, we are seeing similarly contradictory signals in Vietnam. Specifically, we are seeing a push to increase the number of vehicles sold in the country, while at the same time, there are new regulations to make sure that it is well-serviced by ride-hailing apps.

First, the cars. I saw this story about Ford investing $82m more in Vietnam to increase production. Ford’s growth was very strong in Vietnam in 2019 - up 30.6% to 32,000 vehicles. The market as a whole was up 11.7%, with passenger cars made by VAMA members were up 19.6% (about 5% of the market is made up of imports and non-VAMA members).

Ford will upgrade its facilities and hire about 500 people, doubling its workforce. It is competing against the Japanese companies, which have the greatest share (Toyota had almost a quarter of the market in 2019) and are also growing quickly.

There is good reason for Ford and others to invest. Vietnam has very few cars per person compared to its other ASEAN neighbors. Vietnam has the lowest number of vehicles per population of any ASEAN country except for Cambodia and Laos. Both are at 0.028 vehicles per person, compared to Vietnam at 0.031. So not too far off. [These are from 2017, and since then about 611,000 vehicles have been added in Vietnam, growing this figure to around 0.035 vehicles per person.]

Ultimately, the number of vehicles in Vietnam will increase as the country gets richer, because people like cars. The problem is that Vietnam does not have the infrastructure for more cars. The big cities are already overcrowded with scooters, bikes and the cars that are already there.

So, that leads me to the second news item I saw that was interesting: new rules around ride-hailing apps. Let me get this off my chest: I love and hate ride-sharing.

Love: When these ride-sharing apps work well, they can obviate the need for people to have their own cars.
Hate: They increase congestion in cities, because more people ride cars than walk/bike/use public transportation. And they can decrease usage of public transportation, which deprives it of revenue.
Love: They can provide short-term employment that is extremely flexible.
Hate: Many “employees” barely make a living wage. Taxi drivers in many of these cities used to make so much more.
Love: They can make the roads safer because people don’t drink and drive. Vietnam just changed its drunk driving laws (there are some now), and so more people will need to find a safe way home.

Well, Vietnam has a new set of regulations for taxi and ride-hailing services. It doesn’t seem to be too onerous. Apps need to make sure their cars have “contracted car” on them. While taxis need either light boxes or decals.

Grab is the biggest player, with a 73% (!!) market share in 2019, according to ABI Research. It bought Uber’s Southeast Asian business and competes in ride-hailing, food delivery payments, logistics, hotel bookings and GrabKitchen.

On one side, Ford is making a big bet on new car manufacturing, while Vietnam is making ride-sharing more regulated and legitimate. Probably it would be better if the country focused on public infrastructure, with part of that allowing ride-sharing. But that may be asking too much.

There is room for both to succeed: I think Ford will have a good business, and since so few Vietnamese have cars, so will Grab, if it can get the unit economics worked out.