Will Vietnam become a market for foreign cars?

Will Vietnam's auto industry follow the "mistakes" of the Philippines a few years ago, when the market was not large enough, policies were inconsistent and often changed, causing domestic auto manufacturers and assemblers to withdraw from the market, giving way to imported cars, when the tax rate was 0%.

At the conference summarizing 10 years of development strategy of Vietnam's mechanical industry that just took place, the issue of which path to choose for this key industry was "dissected" by businesses and managers.

High protection, no success

Compared to developed countries, the automobile industry accounts for a significant proportion of industrial production value, thereby contributing greatly to GDP. In Vietnam, according to the General Statistics Office, as of 2012, the automobile industry only contributed about 2.8% of industrial production value. The entire Vietnamese market is dominated by 19 manufacturers who are members of the Vietnam Automobile Manufacturers Association (VAMA), but they only share a market with about 100,000 vehicles/year, including many different types of vehicles. The market size is too small, with too many car brands leading to low output, not large enough to develop supporting industries.

Meanwhile, the policy for the automobile industry is inconsistent and full of contradictions. While wanting to develop the automobile industry, it is in conflict with the unsafe road conditions, and cannot develop at an uncontrolled pace. The Ministry of Industry and Trade advocates encouraging the production and consumption of automobiles, while the Ministry of Transport advocates restricting personal vehicles in large cities.

Which will be the strategic car line to save the Vietnamese auto market? (Photo: Giang Huy)

To develop the automobile industry, nearly 20 years ago, the Ministry of Industry and Trade advised the Government to encourage domestic automobile manufacturing joint ventures to invest in localization of products. It is expected that by 2010, the automobile industry will achieve a localization rate of 40-60%, master the technology, meet the domestic market demand of 60-80%, and aim to export automobiles and spare parts, with the goal of localizing engines and gearboxes (two stages that determine automobile manufacturing technology) at least reaching 50%.

However, most of the targets were not achieved (currently, for passenger cars and specialized vehicles, the localization rate does not exceed 25%). It is worth mentioning that the policy of protecting domestic automobile enterprises with high import tax on imported automobiles (currently, import tax on this type of car is from 15-60%), but the joint ventures producing and assembling automobiles have not implemented it, or have not achieved the localization rate as committed.

Meanwhile, there is currently no sanction forcing these enterprises to implement the localization rate. As a result, the price of cars in Vietnam is much higher than that of cars in other countries in the region (because domestic enterprises push the price up to the same level as imported cars (with high taxes). For example, compared to similar cars in Thailand or Indonesia, cars produced in Vietnam cost 50-300 million USD more (equivalent to 2,400 to 12,000 USD/car, depending on the type). This shows that the more protection is increased, the more unreasonably expensive the quality and especially the price of domestically produced cars (?!).

Will it become a foreign car market?

According to the Institute for Industrial Policy and Strategy Research (Ministry of Industry and Trade), 2018 will be a pivotal year for the Vietnamese automobile industry when the import tax on completely built-up cars from ASEAN to Vietnam is reduced to 0%. Thus, Vietnam has less than 5 years to prepare and enhance the competitiveness of the domestic automobile industry. If it fails to take advantage of this short opportunity, Vietnam will fall into a similar situation to the Philippines a few years ago, when the market was not yet developed, unclear policies caused manufacturers to withdraw from the market and switch to imports. This is even more evident when the demand for automobile consumption is booming with the forecast that within the next 5 years, the Vietnamese market will be the place to consume imported cars with a 0% tax rate, causing a serious trade deficit.

Right now, according to experts from the Ministry of Industry and Trade, the auto industry wants to develop too slowly, but late is better than never. First of all, this industry must develop strategic car lines, or those considered to have competitive advantages, capable of leading the domestic market.

Mr. Tran Ba ​​Duong - General Director of Truong Hai Auto Corporation - affirmed: The potential of the Vietnamese and ASEAN markets is still very large with the forecast of popularization of automobiles around 2020. At that time, passenger cars will dominate and gradually replace motorbikes with an annual growth rate of 15-20% in 2018. "Currently, Vietnam has been quite successful in the commercial vehicle line (small trucks, buses) with the localization rate of Truong Hai reaching 35-40%, some car models reaching 50%... If Vietnam has good preparation in terms of strategy, infrastructure and investment attraction policies, chooses the right partners and projects with competitive advantages, Vietnam still has the opportunity to be an important "link" of automobile manufacturers in ASEAN.

Currently, 5-seat cars and trucks are the two main segments of the Vietnamese automobile industry. According to Mr. Duong, it is necessary to first form concentrated automobile industrial zones, produce large output, have export capability, increase technology content, and form an industrial supply chain to support links between Vietnamese enterprises and potential foreign partners.

According to dantri.com