Economic Sector

Last updated: Wednesday, May 15, 2019


Vietnam Auto Industry: Investment Fuelled but Growth Stunted

Posted: Friday, November 16, 2018

The Central Institute for Economic Management (CIEM) recently hosted a workshop themed “Supporting Industry Development for Automobile Industry: Policy Impacts, Barriers and Solutions” in Hanoi. This event aimed to review policies and propose new solutions for the automobile industry to accelerate in the coming time.

Low localisation rate
According to Nguyen Thi Tue Anh, CIEM Deputy President, although the automobile industry has long been directed by relevant ministries as well as the Government for development, but in fact, this key industry is developing slowly, and the localisation rate is lower than the target expected.

Data from the Ministry of Industry and Trade showed that Vietnam has 358 automobile related enterprises, including 50 assemblers; 45 chassis and body producers, and 214 parts manufacturers. These data clearly show the stagnation of the domestic automobile industry if compared with high numbers of auto parts producers in other countries in the region, such as Malaysia with 385 companies and Thailand with 2,500 enterprises.

Mr Luong Duc Toan, Deputy Director of the Processing and Manufacturing Industry Department under the Industry Department of the Ministry of Industry and Trade, remarked that supporting industries for automobile assembling and assembling in Vietnam can only make some parts and components such as chassis, body, cabin, door, tyres, radiators and brake wires in small scale. Investment for auto parts production is still small and products have limited competitiveness on global markets, particularly those made by domestic enterprises.

He cited that trucks, passenger cars of 10 seats or more and vehicles for special purposes made in the country have achieved high localisation rates. 7-tonne trucks, which meet some 70 per cent of local demand, have an average localisation rate of 55 per cent, while passenger vehicles 10 seats or more and some specialised vehicles, which satisfy about 90 per cent of local demand, have a localisation rate of 45 - 55 per cent. Nevertheless, up to 90 per cent of components for these vehicle lines are manufactured or imported by foreign direct investment (FDI) enterprises, while Vietnamese firms order a modest share.

Solutions for breakthrough
Mr Shinjiro Kajikawa, Deputy Director of Toyota Motor Vietnam, said, Vietnam’s automobile market is relatively small and the lack of parts vendors result in low localisation ratio. This is evidenced by Toyota’s much lower automobile output in Vietnam than many other countries in ASEAN and in the world.

Another shortcoming is that Vietnamese businesses have not yet established a professional automobile and component assembly and manufacturing network. They have not yet formed a network of large-scale material and parts suppliers. Thus, Mr Shinjiro Kajikawa recommended that, to develop the automotive industry, we need three factors: Market growth; manufacturer growth and parts vendor growth.

Sharing the same view, Mr Toan said that, in addition to ‘hard’ policy solutions, domestic automotive firms also need comprehensive, intensive solutions, such as forming auto parts manufacturing parks, credit incentive policies similar to high-tech agricultural development to grow priority industries; and setting up industrial development support centres, developing downstream industries and attracting funds for product manufacturing, particularly from leading foreign component manufacturers.

Dr Nguyen Thuong Lang from the National Economics University stated that the Government of Vietnam has significantly supported the automotive industry for a long time. This backbone industry is expected to deliver a surplus value to the economy. Nonetheless, market players do not grow enough. If this reality persists, the best part of the pie will be taken by FDI players, he warned.

Anh Phuong

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