Automobile industry still to grow fully

15 years ago when Vietnamese automobile assembly companies started operation, many people hoped that Vietnam would have their automobile industry in 10-15 years. However, the latest survey at some carmakers showed that the majority of them are operating with backward production lines and the industry's domestication ratio remained very low.

In recent time, the arguments on the development of support industries-skeleton for the automobile industry still were repeated. Producers said that the market is too small to call for support industry investors whereas state management agencies said that producers enjoyed too many incentives of taxes but did not make efforts to develop production.

Nghia, a 13-year experienced technician working in Vinastar automobile manufacturing and assembly company admitted that the assembly line and technique technologies were upgraded already but the assembly capacity has no big change. Assembly accessories mainly are imported from foreign countries. Only tyre, battery and some simple accessories are made in Vietnam.

According to Masaki Kudo, general director of Vinastar, the company is assembling two kinds of truck and two kinds of seven-seat cars namely Ginger and Grandis. They also import completed built semi-trucks from Thailand, in which most accessories of above cars are imported.

"We sought partners capable of producing accessories for car industry in Vietnam but it is impossible to find out any standardised partner, Kudo stressed. Therefore, Vinastar and many joint ventures in Vietnam decided to import accessories from Japan, Taiwan, Thailand and Indonesia to complete their production assembly line.

To make a car, Toyota needs 1,600 suppliers of accessories while Mercedes needs 1,400 suppliers. Meanwhile, in Vietnam, only 11 enterprises can supply accessories such as battery, electrical wire, plastic and rubber components to Toyota Vietnam.

Citing the finance ministry's survey result of six automobile assembly companies (mainly joint ventures or foreign invested firms), up to 2008, the companies had backward production lines. Although the deadline to enjoy investment incentives is coming, their production of automobile accessories in Vietnam has not created any remarkable contribution to Vietnam's automobile industry domestication programme.

In Toyota Vietnam, the average domestication rate is 7 percent of value of a car against the firm's commitment that the domestication rate will be at least 30 percent after 10 years of investment from 1996. In Suzuki Vietnam, the rate is 3 percent only while it must be 38.2 percent in 2006, Ford Vietnam 2 percent and some others with 4 percent.

Meanwhile, in line with Vietnam's automobile industry domestication programme to 2010 and vision to 2020, the domestic production rate of commonly used vehicles (trucks, passenger cars and cars) and specialised vehicles is targeted at 40 percent in 2005 and 60 percent in 2010. The domestication rate of tourism car production is planned at 20-25 percent in 2005 and 40-45 percent in 2010.

Director of Ministry of Industry and Trade's the Industrial Strategy and Policy Research Institute, Dr Phan Dang Tuat compared the automobile industry as a mountain and assembly production companies as top of that mountain but the most importance is support industries as the foot of mountain.

The number of automobile component companies in Vietnam now is 60 who only can produce some simple products while the figure of Thailand is 1,000, Tuat said.

One said that Vietnam was moving slowly in investing and developing support industries for the automobile industry. Thailand spent 15-20 years to create the strong support industry like present through selecting semi-trucks as the development target for the domestic market and exports. He proposed that the state agencies should release policies of attracting investment and technological transference from foreign countries in production of automobile accessories and components for domestic companies.

Lately, Ministry of Industry and Trade proposed the government to give tax incentives for 6-9 seat cars (with the engine capacity of smaller 1.5 litres) to encourage the development of the kind of car. Accordingly, the special consumption tax will be lowered to 30 percent, lower than 45-60 percent on other kinds of cars. 6-9 seat cars will enjoy the registration fee of 2 percent and VAT of 5 percent against 10 percent on others.

Producers of 6-9 seat cars will enjoy CIT reduction or exemption, and 0 percent of machine import tariff.

When the car import tariff is reduced to 0 percent by 2018, car assembly companies in Vietnam can have the option: keeping production or importing cars.