Vietnam lacks necessities to develop auto industry

Automobile experts say there are three conditions needed to develop the automobile industry: a big market, developed supporting industries and developed transport infrastructure. Vietnam has none of these.

In theory, to develop a manufacturing field, manufacturers need a market big enough to encourage production.

A lot of workshops discussing the future of Vietnam’s automobile industry in recent years always cite the need for a big market as a prerequisite to develop the industry. The problem of market scale has not been settled so far.

Ngo Van Tru, Deputy Director of the Heavy Industry Department, a unit of the Ministry of Industry and Trade, and a leading automobile expert once complained: “I have been working in the field for the last 20 years, but now, honestly speaking, I do not know what to say.”

How can Vietnam develop its auto industry, if the market is so small that only 100,000 cars are sold every year and there are up to 400 types of vehicles? Even the best selling model can only boast several thousand sold.

Market scale is key to develop the auto industry, but it’s not easy to expand. Auto experts and management agencies have been arguing whether or not the market is the victim or the culprit in limiting the car industry’s future.

Everyone wants to see the automobile market develop, but good transport infrastructure is also required.

This is a vicious circle. As the infrastructure in Vietnam remains very poor, the Government restricts the number of cars by imposing high taxes. Of course, high taxes do not encourage people to purchase cars, which hurts development. As a result, the auto industry cannot grow because the market is too small.

Over the last 20 years, since Vietnam decided to develop its automobile industry, supporting industries, (i.e., fields that make car parts and accessories), have made no headway. But analysts note that this is understandable.

Foreign-invested automobile manufacturers that are now the members of the Vietnam Automobile Manufacturers’ Association (VAMA) observe that they cannot persuade firms in their home countries to set up factories in Vietnam, because the small market makes production costs high and investment unprofitable. Meanwhile, automobile manufacturers do not have confidence in the quality of car parts and accessories made by Vietnamese companies.

Vietnamese firms hesitate to become satellite enterprises for automobile manufacturers, because they fear that they cannot sell their products.

Nguyen Xuan Chinh, Head of Hanoi Industrial Zone and Export Processing Zone Management Board, claimed that the main problem is that car part makers and automobile manufacturers do not believe each other.

Statistics showed that, by mid-2010, Vietnam had had 8489 kilometres of transport road, but this cannot meet demand from urban development. Every kilometer of road in Hanoi must accommodate an average of 6500 cars and motorbikes.

According to Nguyen Quoc Hung, Director of Hanoi Transport Department, the land fund reserved for transport is low, just 6-7 percent of the urban land area.

The poor transport infrastructure forces policy makers to impose high charges and fees on vehicles in an effort to ease traffic jams.

In principle, transport problems will be settled as Vietnam tries to improve the situation. However, this make take decades, transportation analysts warn.