Auto seminar ponders ways to develop Vietnam‘s stagnant car industry

Infrastructure development and tax policies are vital to boosting Viet Nam's stagnant car manufacturing industry. The issues were much debated by automobile specialists and policymakers 10 June in Ha Noi.

Speaking at a seminar titled "Automobile Market, Supporting Industries, Transport Infrastructure and Development Platform for a Stable Automobile Industry", deputy director of the Ministry of Industry and Trade's Heavy Industry Department Ngo Van Tru said if the country wanted to develop the car manufacturing industry, it could not rely on truck and bus development only as this segment would become saturated in 2018.

Tru commented that between 2008 and 2009, as import and special consumption tax and registration fee dropped, local consumers took the opportunity to buy cars, resulting in scarce supplies.

Elaborating on why domestic manufacturers could not meet rising domestic demand, Tru said manufacturers already had their production plans for the whole year, that was why they could not meet the sudden spike in demand from consumers at that time.

He also said: "Many local manufacturers are quite small in terms of their scale of production. We have to develop strategic measures to promote the domestic automobile industry so that we can attract supporting industries."

Tru also cited the sluggish rate of localisation, saying that Viet Nam was now home to 54 car manufacturers, each on average capable of manufacturing and assembling 2,800 units per year.

Huge variety

There were now 400 kinds of automobiles in the country; however, the volume of each model was quite small, resulting in greater difficulty in further localising production and component manufacturing.

As a result, investment in producing car spare-parts for the local car manufacturers was less attractive to foreign investors due to low cost efficiencies.

Domestic manufacturers were at a disadvantage in exporting spare parts to other countries as local manufacturers largely relied on imported materials for production.

The country's economic development had been dramatic while infrastructure development could not keep pace with growth and that had resulted in a conflict between production, consumption and infrastructure capabilities.

He also mentioned changing tax policies that had caused difficulties in car manufacturing and assembly plants, discouraging both producers and investors.

Nguyen Van Phung from the Ministry of Finance's Taxation Policy said tax always contained a conflict of interest, citing that importers always wanted the ministry to reduce import tax while local producers wanted the ministry to raise import prices to protect local production.

Protection needed

In an attempt to develop the car manufacturing industry in line with its international commitments, Viet Nam needed to protect local producers in a better way, creating advantages for imports and enhancing the supply of input materials without negatively affecting the trade deficit and spurring local production in an attempt to raise product quality.

Phung said the ministry would use taxes and charges in a holistic way, based on the reality of the situation, in a fair, public and transparent manner.

Viet Nam is compelled by the World Trade Organ-isation to cut taxes on various kinds of cars to 70 per cent within the seven years since joining.

By 2019, 2.5-litre cars will enjoy export tax reductions from 90 per cent to 52 per cent. To avoid trade fraud, all kinds of passenger cars will enjoy a 47-per-cent tax rate by 2017.

In the process of the ASEAN free trade area tariffs reduction framework (CEPT/AFTA), from January 1, 2006, 10-seat passenger cars and trucks have enjoyed a tax reduction to 5 per cent since 2006. The nine-seat cars will enjoy a zero tax rate by 2018, according to Phung.

According to the Ministry of Industry and Trade, after 2020, the coach and bus fleet will develop in line with Vietnamese economic development and the generalised spreading of mass motorised transport.

Apart from giving priority to the development of trucks and buses, the Vietnamese car industry needs to outline a clear orientation for the development of tour buses and coaches. Viet Nam will also need to have a focused policy to develop a specific car segment by mobilising finance and human resources so as to avoid haphazard investment.