Floods in Thailand do not bring opportunities to Vietnam’s auto industry

The floods in Thailand have had big impacts on the industrial production bases in the country. Will Vietnam be able to catch the attention from automobile manufacturers in their plan to disperse natural risks?

Thoi bao Kinh te Saigon has quoted BBC newswire as saying “that the production line of Japanese Honda Motors has been severely affected, as a factory of Honda Motors in Ayutthaya has to halt operation for many days because of the interrupted supply chain.”

Thoi bao Kinh te Vietnam reported that on October 31, Honda released a notice on cutting down the output by 50 percent in the US and Canada and halting the operation of the factory in the Philippines, all because of the floods in Thailand. The spokesman of Honda Motors said that the manufacturer is considering sending car parts from other countries.

The assembling factories of Toyota and Nissan in Thailand have also halted operation for the same reason.

In Vietnam, Honda Vietnam now has to reconsider its production plan from November. Meanwhile, Toyota Motors Vietnam TMV has announced that it will adjust the plan of making Innova and Fortuner due to the floods.

Analysts say to date, the impacts of the floods remain not too serious, but the situation may get worse if more factories have to stop operation.

Kurt Sanger, an analyst from Japanese Deutsche Securities, said that Thailand makes up 4-8 percent of the production capacity of any big companies in the globe. Therefore, the production interruption for one month would not cause big damages, but the 3-month interruption would lead to the serious revenue decreases and negative financial influences to companies.

The floods in Thailand have raised a question to Vietnamese policy makers that if this could turn into the opportunity for Vietnam to attract foreign direct investment into the automobile industry.

However, an automobile expert said that it is very difficult to attract foreign investment into the domestic automobile industry, even though many car manufacturing and car part factories in Thailand have been damaged due to the floods, and experts have warned that it will take a lot of time and money to restore them.

Thailand, which aims to become a big car export center and big production bases for automobile manufacturers in the world, has been offering flexible and attractive investment incentives to attract foreign investors. This explains why not only big automobile manufacturers have come to Thailand, but more and more car part and accessories factories have been set up in the country.

In the last two years, while a lot of automobile manufacturers in the world faced difficulties and had to restructure their operation, Thailand still could attract multi billions dollars worth of foreign investment which poured into the projects to making clean and green vehicles.

The expert said that Vietnam still cannot compete with Thailand in terms of the flexibility and the attractiveness of the policies applied to foreign manufacturers. TMV, the No 1 automobile manufacturer in Vietnam, has not made any further investment in Vietnam to increase the localization ratio (the locally made content in automobile products) of its products since 2008. The highest localization ratio in automobile products has been reported for TMV’s Innova model, at 37 percent.

“We once planned to develop Innova model in Vietnam. However, since the policies change so regularly, with the new high luxury tax rate applied since April 1, 2009, we could churn out 7500 Innovas in 2010, a 50 percent decrease in comparison with 2008 (16,000 cars),” said Akito Tachibana, TMV’s General Director. “For that reasons, we cannot think of further increasing the localization ratio of Innova in Vietnam.”

The general director emphasized that TMV and other automobile manufacturers in Vietnam need to see a long term policy so that they can plan long term business strategies in Vietnam.

Japanese Toyota has decided to invest 250 million dollars to expand its factory in Indonesia. The main reason behind the decision is that the Indonesian market is much bigger than the Vietnamese market with the annual consumption level of 750,000 cars which may climb to 1 million cars per annum. Meanwhile, the consumption level is Vietnam remains modest, about 150,000.

Source: TBKTVN

Tags: Vietnam automotive, Vietnam automotive industry, Vietnam autos market