By Nguyen Nhat Lam
HANOI, Jan 29 (Reuters) - Vietnam's 11 foreign auto makers will almost halve production in 2004 to 22,000 cars as new taxes squeeze demand, an industry body said on Thursday.
"We do not have an option," an official at the Vietnam Automobile Manufacturers Association (VAMA), which groups the 11 car producers, said.
The firms, which operate as joint ventures with Vietnamese partners, cut January production by nearly 36 percent from the previous month to 3,140 vehicles, government statistics showed.
The companies had produced around 43,000 cars in 2003.
In May last year, the communist government slapped special consumption taxes of up to 24 percent on locally assembled cars along with a 25 percent tariffs on imported auto parts from January this year.
The taxes and duties rise until 2007, when the special consumption tax will reach 80 percent for automobiles with fewer than five seats.
Despite an outcry from the car makers, which include Toyota Motor Corp and General Motors Corp , Hanoi has said the hikes were needed to offset revenue it would lose in 2006 when it complied with the ASEAN Free Trade Area agreement.
It also defended the higher tariffs on imported car parts as a necessary measure to boost use of locally made components.
To comply with the trade deal, Vietnam may be unable to impose any tariffs on cars or car parts from other members of the Association of South East Asian Nations from 2006.
Vietnamese buyers, scrambling to beat the higher ticket prices this year, sent car sales surging 59.4 percent in 2003.
But this month, the buying has dried up.
"The trend is worrying; business is totally frozen," the owner of one of Ford's biggest dealership in Hanoi said.
She said her showroom, which employs more than 100, sold just one vehicle in January, a stark contrast to an average of two per day last year.
VAMA says it employs more than 7,500 workers. It has warned that if the higher taxes are unchanged, its investment in the sector will drop to $1 million by 2007 from previous projections of $18.7 million.
Its estimated production for 2007 will be 7,000 units, or around 1999 levels.
While motorcycles are still the vehicle of choice for Vietnam's 80 million population, accounting for about 10 percent of vehicle owners, rising disposable incomes have spurred purchases of cars.