Six Weaknesses of Vietnamese Auto Industry

Weaknesses of the local automobile industry were mentioned by experts during a seminar on policies, mechanisms and development tendencies of the industry on August 18.

 

To protect the immature local auto industry and meet the international economic integration roadmap, the Government has extended the period for a gradual removal of protection and priorities, which is expected to be completed before Vietnam’s accession to WTO. However, the localisation ratio has reached only around 20 per cent, even though local automobile enterprises had committed to increase the ratio to between 30 and 40 per cent after ten years.

 

To cut prices of locally-manufactured and assembled automobiles, the local industry has no other way but to rely on production cost cuts and increased use of locally-manufactured accessories. This however, is not easy as the market has contracted. Talking about the situation, Professor Associate and Dr Phan Dang Tuat, director of the Research Institute for Industrial Policy and Strategy, said that local enterprises had taken advantage of protection to increase their prices, close to prices of imported cars. For example, with the present tax policies, prices of an imported car may stand at US$50,000, no joint ventures want to sell their products of the same kind at US$30,000. High prices have resulted in low sales. With many enterprises having taken the advantage of protection, the policy on increasing locally-made accessories has failed.

 

Nguyen Xuan Chuan, former minister of industry and current chairman of the Vietnam Automobile Engineers’ Association, said each completed car needed at least between 20,000 and 30,000 details with thousands of accessories. However, the number of enterprises specialising in manufacturing automobile accessories in Vietnam remains low, around 60 enterprises. The figure includes enterprises which can manufacture tires and inner tubes only. 

 

Professor Associate and Dr Tuat analysed on average a country with a developed automobile industry had 1,600 accessories manufacturers and suppliers for an automobile firm. Even Thailand, whose automobile industry has not emerged clearly in the world map, has over 1,000 support enterprises. Meanwhile, Vietnam has only 60 enterprises for 11 automobile assembly joint ventures, let alone five more foreign enterprises, which have recently been granted licences and some Chinese automobile giants, which are planning to enter the Vietnamese market.

 

An expert expressed concern about the fact that each of local automobile enterprises had developed in its own way without any alliance.

 

Tuat said it was the biggest weakness of the local automobile industry and local enterprises. With only over 30 companies specialising in assembly and ten other under construction; a separation among them has been seen clearly. Therefore, the establishment of an association for local automobile manufacturers is an urgent need.

 

Looking at the landscape of the local automobile industry, it is clear there is a large gap between the local automobile enterprises and the Vietnam Automobile Manufacturers’ Association (VAMA) with 11 joint ventures and five new local enterprises. It is not accidental that only the five strongest Vietnamese enterprises, including SAMCO, Truong Hai and Xuan Kien, have become members of VAMA. Even a link among enterprises within VAMA is very weak as they cannot come closer together in terms of opinions and technology.

 

Ngo Van Tru, deputy head of the Mechanics, Metallurgy and Chemical Department of the Ministry of Industry, said there was another weakness of local enterprises, their fragmented investment.

 

Some local enterprises have invested between VND 40 billion and 50 billion, a modest figure, for assembling automobiles, other difficult parts of works, including electrostatic paint, they outsource. As a result, it is easy to understand why the enterprises have gained modest sales. Even such enterprises as Xuan Kien (Vinaxuki) and Truong Hai (Thaco) with well-developed investment strategies are facing difficulties in their sales.

 

Many people shared the same idea that Chinese automobiles are gradually conquering the local market. In the coming time, when tariff barriers are removed, prices of automobiles will fall and Chinese automobiles with advantage of cheap prices will dominate the local market. Tuat said Chinese automobile manufacturers sold 3.1 million four-seat cars, up by 26.9 per cent against 2004, gaining revenues of US$100.

 

After Vietnam joins the WTO, with the presence of foreign manufacturers and increasingly tough demand of the global market, elimination of enterprises is not avoidable. At the same time, when the economy integrates more deeply, enterprise acquisition and mergence are indispensable, and weak enterprises have to think about the situation or they will go bankrupt.

 

The Vietnamese automobile industry is now in a vicious circle. At the same time, the industry’s master plan is much dependent on the master plan of the traffic service, which in fact has not been implemented well. Hanoi and Ho Chi Minh City lack space for cars parking Due to the constraint, the automobile industry, despite planning a growth rate of between 20 and 25 per cent, gained a growth rate of around 16 per cent.

 

Theoretically, Vietnam can cut special consumption and import taxes to boost the demand and force joint ventures to reduce prices, to increase the market scale and localisation proportion. However, weaknesses in a traffic master plan have constrained the development of the industry.

 

Despite many difficulties, Tuat said that it was necessary for Vietnam to have its own automobile industry. He said that Vietnam’s accession to WTO may be a way to boost the development of the local market, forcing weak enterprises to exit the play ground. "It is unthinkable that a 85 million people country should not have its own automobile industry,” Tuat said.

 

The Research Institute for Industrial Policy and Strategy said that from now to 2010 Vietnam would invest VND 18,000 billion (or around US$1.16 billion) in developing the local automobile industry.