Wednesday, 17 Jan 2018

Vietnam Automobile Industry: Overcoming challenges for development

Updated at Thursday, 12 Oct 2017, 10:26
The Hanoitimes - According to the forecast, in 2020, the average income of Vietnamese will be around 3,000 USD, along with this is the booming demand for car. However, after many years of development, the Vietnam Automobile Industry has not had its expected breakthroughs, when the assembling cost in Vietnam is still higher than imported car.
According to the Department of Industry (Ministry of Industry & Trade) at the conference “Automobile Industry and opportunities to expand production network in Vietnam” in October 12, as of the end of 2016, in Vietnam has 173 enterprises specialized in automobile manufacturing and assembling, in which 56 enterprises focuses on separated components, with the total capacity of automobile assembling of 500,000 cars per year, in which the foreign direct investment (FDI) sector contributes to 47%, and domestic enterprises contributes to 53%.

Currently, there are many big enterprises specializing in manufacturing and assembling in Vietnam, including Toyota, Hyundai, Kia, Mazda, Honda, GM, Chevrolet, Ford, Mitsubishi, Nissan, Suzuki, Isuzu, Mercedes-Benz, Hino, which meet 70% domestic demands for under 9-seated passenger cars. Some local enterprises have actively participated in the global automobile production chain. 

Statistics of the Department of Industry shows, light trucks under 7 tons and under 25 seated passenger cars have high localization rate and basically meet the domestic demands. Specifically, trucks up to 7 tons meet 70% demands, with the average localization rate of more than 20%; passenger car with 10 seats and above meet 90% demand and the average localization rate from 45% - 55%, exceeding the target. 

However, the automobile assembling industry in Vietnam is still at the level of basic assembly, while the production chain mainly consists of 4 phases: soldering, painting, assembling and quality checking. Besides, the business community has not formed a close cooperation and specialization in among each other. As such, the price for car in Vietnam is more than double the price of neighboring countries Thailand and Indonesia. This number will increase compared if developed countries such as the US and Japan. Moreover, the quality of car assembled in Vietnam is still inferior to imported cars. 

Specifically, the localization rate of up to 9 seated passenger cars with the target of 40% by 2005, and 60% by 2010, but at present, this percentage is only at 7 – 10%. Therefore, if compared to other countries in region with localization rate of 65-70%, in which Thailand has 80%, the localization rate of Vietnam is considerably low. The Department of Industry evaluated, if domestic enterprises do not have solutions to increase the localization rate, they will face a losing battle against foreign companies when Vietnam joins the ASEAN Free Trade Area (AFTA).

On the other hand, the Vietnam Automobile Manufacturers’ Association (VAMA) said, due to the small scale of the market, low productivity, for example, the number of VIOS cars produced in Vietnam is equivalent to 1/8 of Thailand, the production cost in Vietnam is higher than neighboring countries. And also because of the low number of cars produced, manufacturers have to import the majority of components to produce cars (70 -80%). This has lead to high cost for packaging, transportation and import tariffs. 

Meanwhile, in 2020, the average income of Vietnamese is expected to be around 3,000 USD, along with this is the booming demand for car. The domestic demand by 2025 will be around 600,000 cars per year. With this scale, the market can attract resources itself for sustainable development. If the automobile industry can meet the market’s demand, especially for up to 9 seated cars, by 2025, Vietnam can reduce import value from 3 – 7 billion USD, and until 2030, this number will be 5 – 12 billion USD, contributing significantly to the trade balance and the stabilization of macro economy. 
Ngoc Thuy
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