Automobile industry facing challenges ahead

It has yet to meet the domestic consumer demand that has continued to increase over the past two decades. Its focus on assembly has prevented it from developing a complete manufacturing plant.

Shortcomings

Nguyen Manh Quan, Head of the Ministry of Industry and Trade’s (MoIT) Heavy Industry Department, says domestication ratios remain at 7–10 percent for cars and 35-40 percent for trucks. Most Vietnamese manufacturing chains can only operate at half their potential capacity.

Quan says automobiles made in Vietnam are disproportionately expensive, 20 percent higher than comparable models in overseas markets. Local consumers naturally choose the cheaper foreign imports.

Vietnam’s ASEAN Free Trade Area (AFTA) membership roadmap will gradually reduce automobile import tarrifs to 0 percent between now and 2018. This means the domestic industry will have to gain a leg up on international competition.

Challenges ahead

In the first place, Quan says, it will have to overcome the shortcomings such as poor management, weak support industry, incomplete legislation and regulation, and lack of policy incentives, to attract sufficient investment.

Vietnam’s transport infrastructure remains underdeveloped, and car owners are subject to three different taxes and five fees. Against this backdrop, local auto manufacturers will have to tailor their product ranges to fit in with the current stage of development.

Vietnam Tax Consultants’ Association Chairwoman Nguyen Thi Cuc says domestically assembled cars are burdened with special consumption and value added taxes of 10 percent which are driving car production costs up but auto sales down.

Vietnam Engine and Agricultural Machinery Corporation (VEAM) General Director Lam Chi Quang says car manufacturing must become more of a domestic industry to create employment, promote technology transfer, develop human resources, and reduce the trade deficit.

Policy-makers and auto manufacturers need to find a solution to both tax adjustment and market expansion issues in the next five years.

Truong Hai Auto Deputy General Director Pham Van Tai emphasizes the need to meet international standards by improving the design and quality of car production.

MoIT Industrial Policy and Strategy Institute Chief Duong Dinh Giam says the Government should offer more incentives for domestic businesses to cooperate with foreign investors in producing accessories and spare parts for the automobile industry.

Ford Vietnam Director General Jesus Metelo Arias, who is the incumbent Chairman of the Vietnam Automobile Manufacturers Association (VAMA), proposes the industry’s strategic zoning vision towards 2030 should ensure stable growth, improve market forecasts, and build a supply chain as part of the global distribution network.

He says no automobile manufacturer can produce every kind of spare part and accessory, and both investors and suppliers need suitable policies to be put in place for them to expand production and market share.