Damco
Danang Hi-Tech Park
Dinh Vu
VSIP
Hapro
Vietnamairlines

Economic Sector

Last updated: Wednesday, July 18, 2018

 

Auto Industry Needs Restructuring

Posted: Thursday, July 05, 2018


After long time receiving a lot of preferences, the automobile sector in Vietnam has not really contributed much to the economy in general and to the industry in particular. Automakers only focus on importing components, assembling and distributing products in the domestic market, while the quality is lower than vehicles imported from China and Thailand and selling prices are still high.

Just assemblers

According to a report by the Ministry of Industry and Trade, the number of automobile-related manufacturers is 358, including 50 automobile assemblers, 45 chassis and body manufacturers, 104 truck makers, and 214 parts manufacturers. This figure is modest to 385 in Malaysia and 2,500 in Thailand.

However, Vietnam’s automobile industry is still quite weak. No factories can make important components of an automobile such as engine, gearbox or drive train. The quality of auto parts is still far below the requirements. Product line-ups are not diversified while product competitiveness is too weak to hold the dominant market share. Product prices are high while their competitiveness is low.

Mr Do Huu Hao, Former Deputy Minister of Industry and Trade and Chairman of the Vietnam Society of Automotive Engineers (VSAE), said, only about 300 companies are engaged in automotive supporting industries among a total of 12,000 companies involved in supporting industries. Up to 90 per cent of auto parts suppliers in Vietnam are foreign direct investment (FDI) enterprises. Only a few domestic firms can join global automobile supply chains.

On average, each car assembler has less than two domestic parts suppliers. More than 90 per cent of components are currently catered by foreign companies. Meanwhile, an automobile is composed of 30,000 to 40,000 components.

The domestic automotive industry has been largely reflected by foreign-led joint ventures in the past years. They just assemble complete knocked-down (CKD) vehicles and have similar levels of production and assembly technologies. The localisation ratio is low, mainly painting, welding, fitting and assembling. More than 90 per cent of costs are spent on parts supplied by their parent companies or from their joint ventures in other countries in the region, said Mr Hao.

On the demand side, the size of Vietnam's automobile market is not large enough to draw global corporations, he explained. They cannot invest if they are uncertain that original equipment manufacturers (OEMs) will maintain or enhance production capacity in Vietnam as tier-1 suppliers.

On the supply side, the capacity of domestic auto parts suppliers is still very limited, he added. Not many can meet quality/expense/delivery requirements to join global supply chains.

Appropriate measures and policies of the Government to support the development of supporting industries in general and automobile supporting industries in particular are not enough. Companies cannot take active action due to complicated mechanisms and procedures. Licenses for production, for domestic supply and for export are different.

Development orientations

In the context of the current robust Fourth Industrial Revolution, automobile supporting industries are oriented to research and shift to develop supporting industries for new automobile types like autonomous cars or self-steering cars, electric cars, and alternative fuel vehicles. Besides, it is necessary to focus on restructuring of products for automobile manufacturing to increase the localisation rate and upgrade technologies to meet international standards.

Mr Le Huy Khoi, Manager of the Market Research and Forecast Department - the Institute for Trade and Industrial Policy and Strategy Studies, suggested that the Government should study and promulgate the Law on Supporting Industries to support the development of supporting industries generally and automotive supporting industries particularly, intensively control operations of FDI projects, encourage specialised research and development (R&D) institutions to carry out R&D on auto parts, arrange soft loans with loosened security rules, sourced from the SME Development Fund, for companies to invest in new equipment for auto parts manufacturing.

He suggested that carmakers work out their own short, medium and long-term development strategies to orient the development of potential products that they will hold advantage till 2025, with a vision to 2035.

He forecast that the income of Vietnamese people will increase continuously from now to 2035 and the high-class car segment will keep growing at a high speed. Besides, the Fourth Industrial Revolution will cast special changes all over, with the first signs of division in the automotive industry in the world, including Vietnam, when this industry receives and processes new ideas about mobility, self-driving cars and electric vehicles. New materials and new production methods will also be introduced. Environment-friendly vehicle development trends will grow strongly in the future.

New cars are being sold well in two major cities - Hanoi and Ho Chi Minh City. With a rapid urbanisation tendency and the quick income increase in the countryside, automakers should take into account new market segments, thus establishing synchronised distribution and maintenance systems to improve the product and corporate competitiveness. They also need to develop human resources, and strengthen their cooperation with R&D institutes, foreign businesses and organisations.

Huong Ly








Other news





www.vietnammanufacturingexpo.com
Metalex
NEV
Trien lam ICT
Sunny World Property Development Corporation
Atoexpo
ETE
Thanh Binh Phu My
FLC
Vingroup
Golf Long Thanh
Nam Kim
Cty Sai Gon- Tay Bac