Looking forward to Motorization

 

Motorization is a term about the process during which automobiles become more popular (over 50 automobiles/1,000 people). Ngo Van Tru, Deputy Head of Heavy Industry Department, under Ministry of Industry and Trade, says that currently, Vietnam is in the process of pre-motorization. The rate of car ownership is 18 ones per 1,000 people. Together with increasing personal income, the purchasing power of the Vietnamese from the year of 2020 will witness significant improvement.

 

The MoIT conducts a research on automobile markets of countries which have common characteristics with Vietnam in which Thailand is considered the comparison basis since it has quite similar development conditions to those of Vietnam. The population of Vietnam is estimated to exceed 100 million ones by 2020.

 

By then, with the average economic growth rate of 7.5 percent per annum, the average income per capita is around US$7,000 which equals to a Thai’s current income. The demand for transportation in Hanoi and Ho Chi Minh City by 2020 is also estimated to triple to that of 1995. The transportation infrastructure system will get more and more developed with the annual investment rate falling around three percent GDP.

 

This is a favorable condition for personal transportation to develop. According to Deputy Minister of Industry and Trade Do Huu Hao, on these foundations, “we can hold a belief that the booming of Vietnam automobile market will take place after 2020.” More specifically, Mr Tru raises calculations to forecast that by 2020, our country will have a car ownership rate of 38 cars per 1,000 citizens and by 2025, 88 cars per 1,000 citizens. This is the period for Vietnam’s motorization. This means that Vietnam needs more than ten years to hope for a breakthrough in car production and consumption.

 

According to AFTA’s commitment, there will be only ten years before automobiles at low prices with zero tax rate of such neighbouring countries as Thailand and Malaysia pour into Vietnam market. Moreover, the Government’s new policy on automobile in 2004 forecasts that the automobile selling rate will reach 239,000 ones per annum by 2010, which requires an increase of 153,000 ones in car production. However, if market expansion gets done as forecast, it might also be possible that car production rate does not stay in line with the expansion pace. This is due to the fact that four other ASEAN countries with car production step by step enhance the competitiveness of their automobile industry so as to benefit from the zero percent CEPT in 2010.

 

Mr Hiroyuki Nakamura, Head of Asia representative office, Japan Automobile Manufacturers Association (JAMA) warns that “unless Vietnam is able to produce competitive enough cars prior to the deadline to implement AFTA commitments in 2018, the market expansion might have its root from imported cars. This is not hard to explain at all. When tax rate among regional countries equals to zero percent, plus with the high demand for cars across the country, domestically manufactured cars will disappear due to the dominance of imported cars from regional countries.

 

Mr Tru puts forwards three situations which might happen: domestic production does not take place, the whole market is present with imported cars or 80 percent of cars on the market are domestically produced. “If the automobile industry cannot develop, Vietnam will have to suffer from a severe trade deficit,” emphasizes Mr Tru and he also raises a question, “what commodities will Vietnam have to export so as to be able to import cars worthy of US$12 billion to satisfy domestic demand in 2025?”

Currently, Vietnam automobile industry is still focusing on developing buses and lorries which account for 46 percent of the whole market and may continue to grow in the near future.

 

However, according to MoIT’s research, mentioned above automobiles will have to obey the rule of gradual decrease. The type of cars with less than nine seats will witness a strong increase. Research in Japan, Thailand, China and Korea markets shows that when GDP per capita (according to purchasing power parity) exceeds US$5,000, the rate of buses and lorries will go down.

 

Mr Tru says that “for this moment, the development of buses and lorries is necessary. But more importantly, Vietnam automobile industry should have thorough preparation so as to meet the increasing demand for cars with less than nine seats when Motorization arrives.”

 

In a nutshell, Vietnam Business Forum would like to quote Deputy Minister of Industry and Trade Do Huu Hao’s statement in the seminar: “It is necessary that a long-term and comprehensive policy for the automobile industry of Vietnam be established.”