Investment for Motorbike Industry: Is it necessary?

11:03:06 AM | 10/19/2006

Within more than a month, the Ministry of Industry (MoI) issued the Decision No. 33/2006/QD-BCN dated March 13, 2006 to ratify the Vietnamese Motorbike Industry Development Strategy until 2015 and vision 2025 and proposed the government to remove the regulation that banned new investment into motorcycle production in Vietnam.

When the decision was enacted, many worried about the feasibility of the strategy as a large majority of motorbike production companies had stopped production due to their unmarketable products. Such ideas had certain grounds.

First of all, Vietnamese motorcycle production firms have few opportunities to grasp market shares. According to expertise calculations, the ratio of inhabitants/motorbike was 7.1/1 in 2003. The urban market will reach saturation point when the ratio is 5-6 inhabitants/motorbike in 2008 while the rural market will reach the point in 2011-2012. The rural market will mainly consume low-cost motorbikes priced VND7-10 million (US$438-625) a unit. This is suitable to the current production level of the domestic firms.

Spontaneous investment movement

The mushrooming establishment of motorbike production factories in the 1998-2002 period raised the annual output capacity of the motorcycle industry to over 3.2 million units. Domestic firms spent no less than US$100 million on assembly lines, each of which could manufacture some ten thousand motorbikes a year. However, some companies churned out only a few thousand motorbikes. Many motorbike manufacturing factories have stopped operation.

Although more than 1.5 million motorcycles were sold in 2005, the Vietnamese market still seemed too small for all 52 motorbike manufacturers to coexist. In the first seven months of this year, State-run and private motorbike makers turned out nearly 376,000 units, an increase of 6.5 per cent against the same period last year and 1.5 folds higher than the growth of the foreign-invested companies. However, a large majority of products were unmarketable. According to the Vietnam Bike and Motorbike Association, sales of its member companies averagely dropped over 30 per cent in recent months. Notably, some companies suffered a 50 per cent sales fall. For example, the State-run bloc with 22 units only assembled nearly 58,000 motorcycles in the first seven months of this year, down up to 34.4 per cent year on year.

The oversupply has made the competition on the motorcycle market fiercer. Under such circumstances, instead of improving quality and trademark, many companies have reduced prices to attract customers. Several even accepted a loss of VND200,000 (US$13) on the sales of each motorbike to clear their in-stock commodities.

The licensing of Chinese-originated low-cost motorbike manufacturing has forced foreign-invested companies to reduce their prices. Their quick sales have caused an overburden for the traffic system in major urban zones in the country. On the macro level, it is very wasteful when many invested in motorbike assembly facilities but only a few could survive.

In addition, the implementation of the localisation policy for the past 10 years is unwise because, according to several companies, it discouraged the cooperation between motorbike makers.

Strategy to recover the domestic motorbike industryIn light of this situation, the Ministry of Industry has decided to implement a new strategy to retrieve the operation of 45 domestic companies. Mr. Ngo Van Tru, Deputy Director of Mechanics, Metallurgy and Chemical Department under the Ministry of Industry (MoI), said, under the roadmap, the import tax on motorcycles will be reduced to only 20 per cent in 2006. If the shortage of investment for domestic motorbike trademarks occurs, Vietnam will gradually lose its home market share.

Under the motorbike industry development strategy, Vietnam began boosting the export of its motorbikes to other countries from 2005. The reports from the MoI’s Institute for Industrial Policies and Strategies Institute (IPSI) showed that the demand for low-priced motorbikes with engine displacement of under 175 cc from now until 2020 is quite high in China, Laos, Cambodia and Africa where the motorbike industry is underdeveloped and the customer taste is similar to that in Vietnam. This is a good condition for the penetration of Vietnamese motorcycles.

The sales of seven foreign-led joint ventures proved that the motorbike market is still on the growth. Honda Vietnam has invested US$24 million to raise its production capacity to one million units a year while Taiwanese-invested SYM sells 20,000 Attila scooters a month.

Experience on the domestic market showed that the low-priced motorbike production strategy is ineffective. It is clear that scooters priced up to US$7,000-8,000 each are being sold like hotcakes. The scooter market is very active while the number of manufacturers of high-grade scooters is very small. Further, not many scooter models are available on the market at present.

The objectives of the Ministry of Industry:

- The 2006-2010 period:

+ Meeting 90 per cent of the demand for motorbikes in the domestic market but satisfying all demand for popular motorbikes;

+ Manufacturing more than 90 per cent of parts and components of a motorbike and 95 per cent of engine parts;

+ Setting up parts supply system capable of providing reasonable and high quality products and good after-sales services; professional distribution and service systems;

+ Exporting popular motorcycles, parts and accessories, equivalent to 450,000-500,000 motorcycles, valued US$300 million in 2010;

+ Setting up and operating R&D centres before 2010.

- The 2011-2015 period:

Meeting 95 per cent of domestic motorbike demand and providing more than 95 per cent of parts, brining in US$500 million export revenues; improving capacities of R&D centres to design popular and high-grade vehicles.

- The 2016-2025 period:

+ Intensifying production and exportation of motorbikes, components and spare parts;

+ Manufacturing high-grade and specialised vehicles for the domestic demand and export markets;

+ Designing and manufacturing engines and motorbikes using clean fuels.

Followings are ideas of experts about this issue:

The gap between foreign-led joint ventures with domestic firms remains too wide,

Mr Le Anh Tuan, Vice Chairman of Vietnam Bike and Motorbike Association

Until now, more than 10 survivors seriously invested in technologies, product quality and trademark reputation. The Ministry of Industry should have suitable technical regulations to sort out capable enterprises and protect consumers. Further, the State organs must have policies to encourage the cooperation of domestic firms to compete with foreign-invested companies.

Vietnamese motorbike industry – weak in technology,

Mr. Nguyen Xuan Chuan, Chairman of the Vietnam Society of Automotive Engineers

Notably, the Chinese technology is dominating in Vietnam over the existence of Japanese technology (Honda, Yamaha and Suzuki) and Taiwanese technology (SYM). The Chinese technology is a medium technology line with many manual processes. Its products, normally quite cheap, are of medium quality. Due to the weakness in financial capacity, management level, technical level and design capacity, most Vietnamese-invested motorbike companies copied and made a few changes to designs and styles of famous firms to turn out low quality and low price products.

Vietnamese motorbikes need a trademark,

Professor Vu Tuyen Hoang, Chairman of VietnamUnion of Science and Technology Associations (VUSTA)

To improve the weakness of the Vietnamese motorbike industry, motorbike companies should focus on designing and manufacturing models that are suitable to the conditions in Vietnam as well as regional countries to penetrate these markets. The names of Honda and Suzuki recall hearers of Japanese motorbikes or Piaggio will make people think of Italian scooters. Vietnam should also have such a name. The Vietnamese motorbike industry is still young and the domestic demand is still very high, especially in rural areas. Hence, the made-in-Vietnam motorbikes must have reasonable prices and meet all technical and safety requirements.

P.V