MOIT wants to follow Thai way in developing auto industry

The Ministry of Industry and Trade (MOIT) is drafting the automobile industry development strategy for 2020-2030, which shows two most important tasks: increasing the localization ratios and setting up powerful mechanical engineering centers. Especially, the way Vietnam will follow to develop its automobile industry seems to have many similarities with Thailand’s.

Where is Vietnam’s automobile industry?

According to MOIT, domestic production can meet 68 percent of the domestic car demand, of which, passenger car output can meet 94 percent of the total demand, while trucks 74 percent.

However, the ministry has admitted that Vietnam has failed to fulfill the development strategy by 2010. A recent inspection tour has shown that by 2009, the localization ratios of some automobile manufacturers had been less than 10 percent of the committed ratios. Suzuki, for example, had had the localization ratio of three percent, while Ford two percent.

In general, the localization ratio of cars with less than nine seats is lower than 15 percent; much lower than the targeted ratio is 50 percent. Meanwhile, the actual ratios of passenger cars with over 10 seats, trucks and specific vehicles are just 30-40 percent, while the targeted level is 60 percent.

According to the General Statistics Office (GSO), there had been 397 automobile enterprises in Vietnam by the end of 2009, including 50 assembling enterprises, 250 enterprises that make car parts and 97 repair enterprises.

Foreign manufacturers have not made heavy investment in developing supporting industries in Vietnam. They have also not transferred technologies to Vietnam, except the simple technologies.

Inconsistent policies

Inconsistent and unreasonable policies have been cited to explain the failure of the implementation of the automobile development strategy. Analysts have pointed out that while the government wants to develop automobile industry, it applied a lot of policies to restrict the consumption of cars, such as the high luxury tax, or high ownership registration tax.

In order to have a developed automobile industry, the government of China always stressed the link between the industry and households, which means that the development of the automobile industry relies on the number of consumed cars. Therefore, China has been always encouraging the consumption of individual cars, thus turning China into a big market with the output of 10 million cars a year.

Currently, taxes just account for 14 percent of the car sale prices in China. In Vietnam, taxes amount to 60 percent. The ownership registration tax is also sky high which would continue rising in the time to come. Nguyen Van Phung, Deputy Director of the Tax Policy under the Ministry of Finance also admitted that cars in Vietnam are expensive due to the high tax rates.

Are there any more opportunities for Vietnam’s auto industry?

Predictions say that by 2020, Vietnam will enter the “motorization period”, when the car demand will soar. By that time, the average income per capital would be 3000-5000 dollars per annum, with which the demand will boom.

It is estimated that by 2020, Vietnam will need 400,000-600,000 cars a year, while the figure would be 1-1.8 million cars a year by 2030.

The most important point of the development strategy is that Vietnam will focus on developing mechanical engineering centers and increasing the localization ratios. By 2020, Vietnam’s supporting industries need to supply 50-60 percent of car parts for domestic assembling and export.

Especially, Vietnam will invite foreign enterprises which have powerful financial capability, strong brands and advanced technologies to help develop one or two strategic car lines. The car lines must be energy saving models using modern technologies, competitive with imports.

Sources said that Vietnam is negotiating with a South Korean enterprise on the issue, and if an agreement can be reached, the enterprise would get big incentives.

Vietnam’s way to develop automobile industry seems to have similarities with Thailand’s. Cars with Vietnamese brands will not be the top priority, while Vietnam strives to obtain big scale production, high localization ratio and exports. – Vietnamnet

Tags: Vietnam automotive industry