Auto industry needs strategic focus

Deputy Minister of Industry and Trade Do Huu Hao spoke to Viet Nam News about various development problems faced by the domestic auto industry, including extending the stimulus package and adopting a strategic product focus.

The Viet Nam Automobile Motor Association (VAMA) has proposed that the Government extends the stimulus policy for the automobile industry beyond 2010. Do you agree with the move?

The Government’s policy to help the automobile industry by stimulating demand, which reduced by 50 per cent the Value Added Tax as well as the vehicle registration fees from 1 February 2009 to 31 December 2009.

The policy was seen as a short-term solution to support the industry during the global economic downturn. As a result, VAMA’s sales in 2009 are expected to be higher than last year, while auto sales in other ASEAN countries experience a decline of 30 to 40 per cent. Many VAMA enterprises have overcome difficulties, receiving orders for cars until March 2010.

Because of the above reasons, ending the policy on schedule is suitable.

How would you assess the Government support given to the automobile industry over the last decade? There are some who argue that automobile enterprises have used the Government’s support to make more profits but not developed the industry as pledged.

The plan for developing the automobile industry was approved by the Prime Minister in 2004, focusing on developing trucks and buses first.

As of now, the industry has achieved the target of over 40 per cent localisation for these vehicles, and is meeting 80 per cent of the domestic demand. With regard to cars with less than nine seats, mostly assembled by foreign invested enterprises, the localisation rate should be increased gradually.

Moreover, after joining the World Trade Organisation, the application of localisation rate for cars was removed. Localisation rate related content set out in Government Decisions are development oriented.

For developing the industry, your ministry has recommended that the 6-9 seat vehicles with engine capacity of less than 1.5 litres be chosen as the strategic product focus. What factors are this proposal based on?

The ministry’s proposal is based on the following reasons:

This car line will be a completely new vehicle in Viet Nam and no manufacturer can accuse the ministry of unequal treatment;

The vehicle, which meets Euro2 standards on exhaust fumes, will be fuel efficient, environmentally friendly and economical;

The selected vehicle may enjoy new tax incentives.

Experts says the Vietnamese market is a very small one with the demand of around five cars per 1,000 persons but there are up to 17 licensed auto assemblers. This might make it difficult for the industry to adopt the strategic car development option. How would you respond to this opinion?

If the Prime Minister approves the proposal, it means that the Government has set up a fair playing field for all manufacturers.

The Government cannot select 17 strategic car lines for 17 car makers. The Government will give incentives to makers of the selected car line and will not force it on anyone.

If this proposal does not meet with agreement from the Ministry of Finance or the automobile makers, would the ministry come up with another proposal to the Government?

If Viet Nam does not select a strategic car line with necessary preferential mechanisms, it will be difficult to develop the automobile industry, especially considering the import tax on automobiles from ASEAN countries will be reduced to between zero and 5 per cent in 2018.