Car industry faces development roadblocks

Wednesday, Aug 20, 2014 08:36

Under the plan, cars with nine seats will meet 60 per cent of local demand by 2020 and 70 per cent by 2030, while cars with 10 seats or more will meet up to 90 per cent by 2020 and 92 per cent by 2030.— Photo

HA NOI (Biz Hub) — Viet Nam's ambitious master plan for the development of its fledgling automobile manufacturing industry for 2020 to 2030, which the government recently endorsed, is facing major stumbling blocks.

According to the Prime Minister's Decision 1168/QD-TTg dated July 16, Viet Nam targets the production of 227,000 automobiles and aims to be a supplier of spare parts and high-value items for the world automobile market by 2020.

Under the plan, cars with nine seats will meet 60 per cent of local demand by 2020 and 70 per cent by 2030, while cars with 10 seats or more will meet up to 90 per cent by 2020 and 92 per cent by 2030.

Also by 2020, trucks will meet 78 per cent and special-purpose automobiles will make up 15 per cent of domestic demand. As many as 20,000 units will be manufactured for export while spare parts exporters are expected to bring home US$4 billion.

According to Nguyen Manh Quan, Head of Heavy Industry Deparment under the Ministry of Industry and Trade, Viet Nam will have an estimated total population of more than 100 million in 2020 with GDP per capita expected to reach $2,000.

"The demand for cars, coupled with the upgrade in transportation infrastructure, will sharply increase by 2020" he said.

But a number of major obstacles are in the way.

ASEAN commitments

ASEAN members' auto imports are already getting a preferential 50 per cent import tariff from early 2014 as a result of the ASEAN Trade in Goods Agreement (ATIGA). In addition, under commitments to the ASEAN, auto import taxes in 2018 will be completely abolished.

ASEAN will waive taxes on car imports between ASEAN member countries, as well as cars from Japan, South Korea and China, who are all party to the agreement.

The tax cut poses a serious threat to the country's auto industry, which is expected to compete with the price and quality of imports.

Car imports from ASEAN countries have already increased in volume in recent months. According to the General Department of Customs Viet Nam imported 4,282 cars worth $65 million from ASEAN members in the first five months of this year, an increase of 1,104 units in volume and $12 million in value from those of the same period last year.

Of these, car imports from Thailand made up 3,575 units worth $58.5 million while those from Indonesia made up 707 units worth $6.8 million.

Ngo Van Tru, Deputy Head of the Ministry of Industry and Trade, said that if Viet Nam failed to take immediate measures, the country would become a big auto importer in the region.

Jesus Metelo Arias, the Viet Nam Automobile Manufacturers Association (VAMA) Chairman, said competition was expected to intensify as free trade area integration drew near.

To work around the negative impact of the ASEAN agreement, Arias suggested that Viet Nam thoroughly prepare for the competition with uniform policies and stringent international treaty compliance.

Stable policies incorporating long-term visions and specific road maps would allow businesses to plan properly for the anticipated healthy competition.

Producing a car in Viet Nam currently costs 20 to 25 per cent more than in other ASEAN markets. Arias said the reduction of these costs and improvement of the country's competitiveness required stimulus, tax reductions and minimal input costs.

No previous target achieved

It has been 20 years since foreign car manufacturers first built factories in Viet Nam.

According to the Industry and Trade Ministry's report, in spite of a long history of Government investment, the domestic auto industry is behind on most of its targets.

While the target for local diesel production was set at 100,000 units by 2010, Truong Hai was the only company that invested in a diesel factory which began production in 2014.

As many as 100,000 gearboxes and 100,000 transmission systems were forecast for production in 2010, but investments have yet to be made.

Meanwhile, Viet Nam plays host to only 210 auto parts manufacturers, which was one-fifth of Indonesia's production base and one-fifteenth of Thailand's.

Adding insult to injury, most of these companies have been producing simple low-technology products with minimal local content.

Further action needed

Industry experts said a number of actions were required to make the auto development plan feasible. These included tax reductions, financial support for manufacturers and car buyers and smarter focus on production.

Duong Dinh Giam, Head of the Ministry of Industry and Trade's Policy Institute, said the Government should also help car buyers by providing credit similar to the preferential loans granted to farmers purchasing agriculture vehicles.

Giam urged the government to further cut taxes and fees imposed on small fuel-efficient cars to trigger demand, especially in the urban areas.

Speaking for manufacturers, Tran Ba Duong, chairman of the management board of Truong Hai, Viet Nam's largest truck and bus maker, said the domestic auto manufacturing sector should use its competitive advantage such as the production of car chassis, car body and other simple parts

Pham Bich San, Deputy Secretary General of the Viet Nam Union of Science and Technology Associations, said that to develop the country's automobile industry, local manufacturers should initially focus on meeting local demand with a wide variety of vehicles for different uses. — VNS

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