Some are skeptical about MOIT’s strategic car project

Just a few days after the outlines of Ministry of Industry and Trade’s plan for development of a “strategic car” – a true ‘made-in-Vietnam’ vehicle – became public, critics have opened fire.

“Strategic” car line will enjoy tax incentives

MOIT’s objective is to strengthen the nation’s automobile sector so it can hold its own as ASEAN – the Association of Southeast Asian States – progressively lowers to zero the allowable tariff on cars made in its member states.

ATIGA, the ASEAN Agreement on Trade in Goods and Services that was signed in February, defines a ‘made in ASEAN’ car as one having 40 percent ‘ASEAN content.’ At present, no car assembled in Vietnam has more than 30 percent local content; for most, the local content value is only ten to fifteen percent.

The MOIT plan envisions production of a made-in-Vietnam multipurpose vehicle (MPV) with six to nine seats and a small, 1.5 liter engine. The vehicle is to meet the Euro 2 standard on emissions.

MOIT seems to think that it has satisfied objections by all companies currently assembling automobiles in Vietnam because it has not chosen any of their existing models as the ‘strategic car line’ to be given Government support. It envisions that the vehicle will be mass-produced and have a strong position in Vietnam’s market by 2018, when Vietnam must meet its ASEAN zero tariff commitment.

According to a MOIT official, Heavy Industry Bureau deputy director Ngo Van Tru, a ‘business as usual’ scenario would see the net cost of auto imports rise to some $12 billion annually by 2025, but if eighty percent of the nation’s autos can be assembled in Vietnam with a domestic content of seventy percent, the net import cost can be held to about $1.5 billion.

Critics weigh in

Vietnamese language automobile and motorbike forums have been full of posts reflecting doubts over the feasibility of the strategic car plan.

Some posters wrote that they cannot understand why MOIT wants to develop models with many seats (6-9 seat) but a low engine displacement. Such a car would be ‘weak’ and perform badly under actual road conditions here, they say.

MOIT believes that cars with small cylinder capacity will be fuel-efficient and environmentally friendly. However, some experts argue that the vehicles with big tonnage but weak cylinder capacity will perversely consume more fuel and cause more serious pollution.

Other experts say it will be possible to achieve the goal if the cars are equipped with turbine engines. (The Mercedes 1.8 liter turbo model, for example, produces power equal to 2.4L engines on normal vehicles). However, these experts point out that turbine powered cars, if they can be manufactured, will not be ‘cheap’ as expected by MOIT.

The online paper VnMedia, quotes an unnamed automobile expert as saying that MOIT tried to satisfy all automobile manufacturers while ‘ignoring scientific principles.’ “It may happen,” he said, “that the world will do us a favour by designing a specific model that which can meet the requirements set by MOIT.”

Looking at the issue from a business perspective, a twenty-year veteran of the auto business, Ford Vietnam DG Michael Pease, believes that it would be better to choose an existing car line in Vietnam as the strategic car line. This will allow financial savings, because automobile manufacturers have already invested in the localization process.

Pease says the strategic car line should be one which can sell well in Vietnam in order to hold down unit cost of production and bring opportunities to export cars to other ASEAN countries. The Ford executive adds that he hasn’t seen any models similar to the car line proposed by MOIT which are currently being assembled in ASEAN countries. Therefore, he is still not sure about its production and export potential.

“We can do it” says VAMA

Pham Anh Tuan, Secretary of the Vietnam Automobile Manufacturers’ Association (VAMA), is sure that VAMA’s member companies can build cars that meet the requirements set by MOIT.

Tuan confirmed that no model now manufactured in Vietnam fits MOIT’s prescription. However, Indonesia has the seven-seater Xenia model with a Daihatsu engine displacing 1.5 liters.

“If MOIT’s proposal is approved by the Government, manufacturers will need some 2-3 years to design the car and get it into production. The models MOIT needs are not completely new models, but ones which can be improved from existing vehicles,” he said

Tuan understand the worries expressed about introducing a car that is relatively large but with a small engine. That’s a challenge for manufacturers, he said. They’ll have to consider this thoroughly, so they can make products which satisfy both requirements. Severely underpowered vehicles will not be accepted by customers, Tuan said, even if their price is lowered by state preferences.

An expert agreed with Tuan. He said that big manufacturers have a lot of options and the ability to combine them to meet different requirements. This expert stressed that the objective is not high performance or high fashion cars, but practical models that answer the need of consumers who do not have much money.

Will the auto industry benefit?

Some analysts, though agreeing that the chosen strategic car line will not be such a ‘tall order’ for automobile manufacturers, have questioned if the benefits envisioned for Vietnam’s automobile industry can be realized.

The analysts believe that the strategic car line may only benefit consumers for a short time thanks to attractively low prices, while it will not benefit the automobile industry and the State budget. They point out that because small and ‘clean’ cars are increasingly favoured, technology is advancing rapidly, and thus the ‘made-in-Vietnam’ models may be obsolescent in the world after 2018.

VnMedia has found out that besides the Daihatsu Xenia mentioned above, Toyota also will unveil a 1.5L engine model, the Avanza. It’s on display at Vietnam Motor Show in HCM City City which opened on November 18.