Vietnams demand for aftermarket motor oils is expected to see tremendous growth as an expanding middle class boosts passenger vehicle sales, said market participants and observers.
Only around 16 of every 1,000 Vietnamese citizens had cars last year, compared to Malaysias 341 and Thailands 196, according to Solidance, a consulting firm based in Singapore. However, Vietnams sales of passenger vehicles grew at a compound annual rate of 38 percent from 2012 to 2016, surpassing its neighbors. Sales are expected grow around 145,000 units in 2016 to 225,000 units by 2020, according to Solidances Driving Vietnam white paper released this month.
Two-wheeler sales, on the other hand, will stay flat through 2020 as the market reaches capacity.
Vietnam has one of the regions fastest-growing affluent and middle-income groups, defined by incomes above U.S. $1,000 per month, said Michael Sieburg, an associate partner based in Ho Chi Minh City. With a CAGR of about 15 percent, this income group will reach 45 million people by 2025.
A Shell Vietnam Ltd. official noted that as a result of rising disposable income levels, the population is travelling more and consuming more lubricants. [Shell] sees tremendous growth potential in Vietnam for our lubricants business and is marketing a number of lubricants to meet growing demand, including engine oils and gear oils, General Manager Tran Hong Van told Lube Report Asia.
Aftermarket engine oils are expected to grow at a CAGR of 7.6 percent between 2015 and 2021, to around 3,700 metric tons, Frost & Sullivan pointed out in a report released in March.
Currently, mineral engine oil is dominating the Vietnamese market due to its reasonable price, said the United States-based market research firm. However … due to increased product knowledge and higher awareness from consumers, the market share of semi-synthetic and synthetic engine oils is expected to increase to 56.3 percent by 2021. Revenue from engine oils is expected to increase to $18.6 million, from $8.5 million over the course of that period.
Japanese and Korean brands dominate Vietnams passenger vehicle market, presenting strong opportunities for Asian aftermarket players to gain original equipment manufacturer approvals, Sieburg added.
Tran concurred. We primarily work with local distributors, and we also work closely with OEMs such as Hyundai and Honda to supply lubricant products to customers.
Toyota holds the top spot in passenger car sales and is followed by Tru?ng H?i Automobile JSC, or Thaco, which assembles models for Mazda, Kia and Peugeot. Most aftermarket activities are found in the countrys largest and wealthiest cities, such as Ho Chi Minh City and Hanoi, where about 45 percent of recorded passenger vehicles are registered, according to Sieburg.
Reduced tariffs on vehicles will also indirectly push lube sales, noted Tran. Import duties on passenger vehicles from Association of South East Asian Nations members will be reduced from 50 percent in 2015 to 0 percent in 2018.
Cars with engine sizes of 2 liters or less will see the most growth from incentives, Sieburg continued. To promote the use of small engine capacities with lower fuel consumption and lower carbon dioxide emissions, consumption tax for vehicles with 2-liter and smaller engines was reduced from 45 percent to 40 percent last July.
Although imported luxury passenger makes like BMW and Audi would not benefit from these tax incentives, wealthy Vietnamese are not averse to paying high prices for status symbols, making Vietnam among the worlds fastest growing markets for luxury brands such as Mercedes, Sieburg concluded.