Promoting auto industry

The Ministry of Industry and Trade forecasts that by 2020 the domestic touring car market will undergo explosive growth when the Vietnamese economy reaches a higher development standard and the lives of people improve.

Statistics show that in 2009 compared with 2002, an additional one million automobiles were put into circulation, an increase of 4.25 times. The annual growth rate of the domestic auto industry in that time period was about 60.1 percent.

Currently 54 auto manufacturers/assemblers are operational in Vietnam, including 12 foreign direct investment (FDI) companies and 42 domestic companies. Businesses such as Truong Hai, Xuan Kien, Toyota Vietnam and Chien Thang are taking the lead in terms of sales and revenue. These companies have invested from VND300 billion to VND1.5 trillion in manufacturing spare parts and components to increase local contents as well as in applying modern technologies to improve the quality of products and reduce the production cost. Products of these companies are becoming more reliable to Vietnamese consumers.

The support industry for the Vietnamese auto sector is still undergoing the initial development process. Ngo Van Tru, the deputy director of the Heavy Industry Department of the Ministry of Industry and Trade, said, “Overall, domestic manufacturers of auto spare parts have made certain progress and contribution to the auto sector.” About 20-30 percent of the contents of cars assembled here in Vietnam are manufactured by domestic companies. Notably, Vietnam has realized the targets set for the local contents of buses with more than 24 seats and trucks with carrying capacity of less than five tonnes.

Though it has achieved many good results, the domestic auto industry still faces numerous difficulties. Specifically, the output of each line of autos manufactured/assembled in Vietnam remains too small and therefore it is very difficult to implement the plan that aims at increasing the local contents of autos. In 2008, 54 companies manufactured/assembled 152,509 autos in Vietnam, meaning that each company manufactured/assembled 2,800 autos. About 400 types of autos are being manufactured/assembled in Vietnam and about 380 autos of each type are launched to the market each year.

Currently, most companies that are operational in the domestic auto sector still focus on assembly and most of them are lacking advanced technologies in the field of auto manufacture. Some companies that manufacture spare parts and components for autos are still small-sized and their products are simple and of low value.

Vietnam is a populous country and the Vietnamese economy is developing rapidly while the transport infrastructure remains inadequate. Vietnam is promoting the manufacture and sale of autos but the existing condition of roads in Vietnam cannot meet the requirements of heavy traffic. Moreover, the Vietnamese auto industry is still young and it cannot be protected as well as that of other countries in the region because Vietnam is implementing its commitments with ASEAN (Association of South East Asian Nations) and the WTO (World Trade Organization).

The Ministry of Industry and Trade said that after 2020 when the Vietnamese economy reaches a higher development standard and the lives of people improve, the demand for use of cars will possibly reach or exceed the average of 50 cars per every 1,000 people. Touring cars will then account for more than 70 percent of the auto market. So if timely actions are not taken to accelerate the growth of the domestic auto industry to meet the consumer demand, Vietnamese people will have to buy imported cars when Vietnam opens the domestic auto market entirely in 2018 according to the ASEAN Free Trade Agreement (ASEAN/AFTA). And if this happens, Vietnam will have to face an annual trade deficit of about US$12 billion due to high expenditure on import of fully assembled cars. Therefore, right from now, along with prioritizing the manufacture/assembly of trucks and buses, the domestic auto industry must have clear orientation for boosting the manufacture/assembly of touring cars. Ngo Van Tru said, “The domestic auto market is still small and therefore auto manufacturers/assemblers must have clear development policies focusing on a certain line of products rather than investing simultaneously in many types of products as they do currently.”

Some Vietnamese companies have successfully manufactured/assembled some types of touring cars. Toyota Vietnam, for example, has done research and successfully manufactured Innova-brand touring cars with 6-9 seats with local contents accounting for more than 60 percent. This type of car is best selling among other brands of Toyota Vietnam (in 2009 the company sold more than 8,000 cars of this type). Another example, Vinaxuki, has bought Japanese technology and is preparing to launch a type of touring car with 5-7 seats on the occasion of the 1,000 anniversary of Thang Long – Hanoi. Vinaxuki continues to invest in technological modernization with an aim to increase the local content of its touring cars to 70-80 percent by 2016.

The Ministry of Industry and Trade has proposed to the Prime Minister some solutions to assist domestic auto manufacturers/assemblers. One of those solutions is to impose a stable, high import tax rate on auto until 2018 in order to protect domestic manufacturers. Other solutions are to encourage investment in manufacture of auto spare parts and components; to promote auto sales by offering consumers an interest subsidy when they borrow loans to buy made-in-Vietnam cars.