Two sides of the Vietnamese automotive industry

Typically, when the market and sales grow, it means that production in that industry also develops. But in the automotive sector, the trend is currently the opposite: the market continues to grow strongly, but the industry, specifically the production and output of components and parts, remains stagnant.

The all-new 2014 Sorento model has just been introduced by Thaco.

For about the last three years, at the beginning of each year, the government and relevant ministries have issued directives summarizing and outlining the development direction for this industry. However, as is often the case, year after year, and even now, there has still been no concrete decision on the direction of the automotive industry, especially with the impending commitments on import tariffs within the AFTA region and the uncertainty surrounding whether the automotive industry will be included in FTA agreements with some countries.

Long-term growth

The automotive market is undoubtedly poised for strong, sustained growth with immense potential – this is the assertion of most market experts, industry representatives, automakers, and the general public. This is an inevitable trend and a crucial advantage for the development of the automotive industry.

To be more specific: Sales figures released by the Vietnam Automobile Manufacturers Association in February show that this is the 11th consecutive month that sales across the industry have been higher than the same period last year, and total sales for 2014 are projected to reach 120,000 vehicles, a 9% increase compared to 2013. Importantly, this growth is still primarily based on the efforts of the businesses themselves, rather than the impact of policies, especially long-term policies, which have had almost no decisive effect (except for the reduction of registration fees in Hanoi and Ho Chi Minh City). So what are the efforts of the manufacturers? The most obvious is the increased frequency and frequency of new product launches combined with the selection of suitable price points.

Needless to say, the massive launch of new products in 2013 was remarkable. In March 2014 alone, numerous automotive manufacturers and assemblers, especially market leaders, competed to release new models. Ford Vietnam introduced the EcoSport in Thailand, with its expected arrival in Vietnam in June (this is Ford's unique approach, as the entire Ford group implements the One Ford plan, ensuring consistent quality regardless of where the product is manufactured or sold). Truong Hai (Thaco) – a 100% domestically owned company – launched the New Sorento 2014, featuring strategic changes, particularly the shared engine and chassis with Hyundai (specifically the Santa Fe), and the addition of numerous new and modern features compared to the previous model. This year, Thaco is expected to launch around 5 new products under its brands, including new Mazda models, a new Carens, and a new Morning… The leading car manufacturer in the Vietnamese market is also quickly launching the new 2014 Toyota Vios with high expectations… A number of other car manufacturers in Vietnam are also planning to launch new models this year. In general, representatives of these car manufacturers all affirm that the frequency of new model launches in Vietnam is truly “very integrated,” meaning that whenever a new model from a manufacturer is launched globally, Vietnam is always considered one of the first markets to introduce it.

How long will we keep hesitating?

The market remains full of potential and is sure to continue strong growth, primarily due to the enormous demand, especially given the positive outlook for the Vietnamese economy in general. This doesn't even take into account the potential for explosive growth from a market perspective, given the impending implementation of AFTA commitments within ASEAN countries, with import tariffs on complete vehicles, parts, and components at 0-5%. However, from the opposite perspective, the automotive manufacturing industry remains stagnant, mainly because previous planning has failed, and new plans and solutions are still in the review and research phase. One expert asserted that there are currently only two options: First, to stop developing the automotive manufacturing industry and focus solely on assembly, import, and sales. Second, if the automotive manufacturing industry continues to develop, a quick decision must be made on what to do, whether to provide specific support, who to support, which businesses, and whether such support is feasible. These issues are considered very urgent, but there are no concrete answers yet.

In reality, both of the above options are based on underlying reasons, the core of which lies in dependence on the management of major global automotive companies. If domestic businesses want to develop production, the first thing they must consider is how to participate in the global value chain. This is not simple, because no automotive company in the world today lacks the participation of businesses in many regions and countries. So the question is why are Vietnamese businesses in the automotive, auto parts, and components sector unable or difficult to participate in the global production, supply, and value chains of automotive companies, even though all the major global companies have a presence in Vietnam, whether through joint ventures or direct investment.

This illustrates the difficulties, the need to find a common plan and solutions for the industry's development, but each enterprise has already found ways to "take care of itself." At a recent press conference, a representative of a large Vietnamese automobile company affirmed: Although we know we will face many difficulties, we are not overly concerned about fulfilling our AFTA commitments. This company's confidence stems from its ability to select specific automobile brands and participate in the global value chain. For example, they produce certain types of parts and components, but to produce those parts and components, they don't do it 100% themselves; other countries in the region participate. Don't think that making a car means making the entire car; you have to start with the smallest, least important parts.

The crucial point is that even the smallest parts and components must involve businesses from various countries, businesses within the manufacturers' systems. The production, distribution, and consumption of a car, a part, or component are no longer confined to a single business or country, but involve a regional and global system. This is perhaps the most important thing today to understand the importance of long-term, sustainable planning that adapts to all contexts, especially in the current trend of rapid and deep integration, rather than just debating whether or not something should be done.

According to diendandoanhnghiep