Vietnam's bikers race to upgrade as auto sales explode

By Mai Nguyen

HANOI (Reuters) - Hoang Hai turned his back on a Vietnamese business that was headed for bankruptcy and became a driving instructor instead. Now he is riding a wave of interest in car ownership as the country's trend-setting middle class swaps two wheels for four.

The Hanoi driving school where Hai works is inundated with people eager to get behind the wheel. About 300 have applied each month so far this year, double the rate in 2014.

Hai, 45, says at least eight out of 10 learners don't own a car, but they all want one. "As soon as there is an intention to buy a car, they'll take a driving lesson," he said.

Famous for its swarms of scooters, Vietnam is seeing auto sales surge amid the rapid expansion of a young, style-conscious middle class after 15 straight years of economic growth of over 5 percent.

While major regional car markets Indonesia and Thailand saw annual declines in auto sales last year, Vietnam's leapt 43 percent, Vietnam Automobile Manufacturers Association (VAMA) data shows. Toyota, Mercedes-Benz, Ford and Honda reported solid annual sales increases, despite high import taxes.

The number of households in Vietnam with financial assets of $100,000 to $2 million will soon be among the fastest-growing in the world, according to Economist Intelligence Unit research, fuelling luxury vehicles sales in a country where gross domestic product per capita is still only about $1,500.

Porsche Cayennes and Bentleys can nowadays be seen jostling with budget cars and scooters on the chaotic boulevards of Hanoi and Ho Chi Minh City.

BMW says its sales in Vietnam since 2007 have jumped an average 20 percent to 30 percent annually, with more units sold in the past two years than the more populated Philippines, though still far behind more developed Thailand and Malaysia.

"Vietnamese are very entrepreneurial," Horst Herdtle, head of importer BMW Euro Auto Vietnam, said. "They want their cars to reflect that success."

DREAM RIDES

Importers say that while high taxes are putting the brakes on Vietnam's auto market, some of these obstacles should disappear in 2018 when import duties on cars traded among Southeast Asian countries are removed.

Andreas Klingler, general director of Porsche's Vietnam importer, said there was a waiting list of almost 100 people for the German sports cars, and most customers wanted their rides customized.

"Most of our clients prefer to configure their own dream car," Klingler said in an email.

While importers eagerly await the lowering of regional tariff barriers, the domestic auto manufacturing industry is bracing for tough times.

Toyota Vietnam president Yoshihisa Maruta told reporters last week the company was considering whether to continue its assembling operation in Vietnam, as importing complete cars from other Southeast Asian countries would be cheaper in 2018.

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Motorcycle salesmen are also nervous about the future.

Registered motorcycles in Vietnam, where one in two citizens owns a bike, fell annually from about 3.3-3.7 million units during 2011-2013 to 2.92 million last year, according to official data in state media. Resident motorcycle makers include Yamaha, Suzuki, Honda and Piaggio.

For many who can afford it, upgrading is a must, not just from motorcycles, but to as flashy a ride as possible.

"Once you drive cars, you no longer want to ride bikes," said Doan Van Tuan, an employee of a government firm, as he inspected the new BMW X6 model at its Hanoi launch.