Engine assembling at a factory of Truong Hai Auto Corporation. Chu Lai Open Economic Zone officially withdrew an investment certificate of the Chu Lai-Truong Hai engine manufacturing project, shattering final hopes for carrying out the country's development strategy for auto industry to 2010, with vision towards 2020. — Photo huyndai3s.com

HA NOI (Biz Hub) — Chu Lai Open Economic Zone in the central province of Quang Nam withdrew an investment certificate of the Chu Lai-Truong Hai engine manufacturing project at the end of 2014.

This was seen as a missed opportunity for Viet Nam to manufacture its own domestic automobile. VietNamNet online newspaper said that ending the project has shattered final hopes for carrying out a development strategy for the automobile industry to 2010, with a vision towards 2020. The engine manufacturing project began on June 22, 2012. It was expected to develop supporting industries that would increase the localisation rate for manufacturing within the Vietnamese auto industry. The factory's products were to be part of the auto manufacturing value chain of South Korea's Hyundai Motor Company. It was also considered to be the first step for a strategy to take part in the global auto manufacturing value chain so that its products would not only be sold in Viet Nam, but also in regional markets, as part of the ASEAN Free Trade Area (AFTA).

Therefore, not only investor Truong Hai Auto Corporation (THACO), but also Quang Nam Province and the Vietnamese auto industry had expectations about the success of the project. The project had a total investment of US$185.5 million, with $126.5 million set for the first phase.

It was expected to come into operation at the end of 2013. Yet due to slow progress, it was later expected to begin operating at the beginning of 2015. However, the project has now been officially cancelled.

Broken dreams for auto engine manufacturing

The closure of the project was predictable, after Hyundai surprisingly announced its withdrawing from it last January.

The South Korean company said that it ended its cooperation with Truong Hai because the contract duration of technology transfers between the two sides had been completed. The contract was signed in November 2011.

Hyundai also said that the extending of the project period affected its production and business plans in ASEAN. It submitted a report to leaders of the corporation to consider adjustments for technology transfers and production plans in 2016.

Assembling 5-sear cars at a factory of Ford Vietnam. The closure of the Chu Lai-Truong Hai engine manufacturing project makes Viet Nam auto industry have more difficulties in its development process. — VNA/VNS Photo Tran Viet

These were confirmed by Nguyen Mot, communications director of Truong Hai. Mot said that the firm was proactive to ask for concluding the project after Hyundai ended its cooperation. "We will renegotiate with Hyundai in 2016," he said, adding that the implementation of the project depends upon the results of the negotiations.

With great expectations, the company was awarded an investment certificate in June 2012. Yet, Truong Hai had not carried out many plans called for in the project during the past two and a half years. For instance, it only organised a large groundbreaking ceremony. Also, Quang Nam Province continuously sent proposals to the government on preferential investment mechanisms and necessary policies to support the project.

The project received the same support as those that manufacture major mechanical products. Its entanglement in exhaust emission standards was resolved, and the government gave permission for the project to manufacture 100,000 diesel engines by the end of 2018. Also, when it faced financial difficulties, the government extended the time for Truong Hai's tax payments so that it could spend its capital on the project.

However, the ambitious plan of the Vietnamese firm did not become a reality and the dreams for manufacturing auto engines failed.

Missed opportunities

At the moment, there could be an affirmation on the failure of Viet Nam's strategy for developing auto industry to 2010, with vision towards 2020.

Last August, the Ministry of Trade and Industry announced a strategy and development plan for the auto industry in Viet Nam to 2025, with vision towards 2035.

Many ambitious goals were presented. For example, the Vietnamese auto industry is to be developed to become a crucial sector in the nation's economy. By 2020, it will meet 60 per cent of the total demand for cars of up to nine seats, 90 per cent of cars with more than 10 seats, 78 per cent of trucks and 15 per cent of specialised cars. By 2030, the capacity for providing types of cars for the market will increase to 70 per cent, 92 per cent, 80 per cent and 20 per cent, respectively.

The failure of the previous strategy caused people to be divided about the implementation of the strategy in the new period. Challenges have become larger because Viet Nam only has a very short time to create the foundation for the development of an auto industry. By 2018, while the car import tax remains at only 0 per cent, the auto industry will cease to operate if it has not been developed.

Auto companies, such as Japan's Mazda and Toyota, and Hyundai, once made large investment plans in Viet Nam, but they have not carried them out. The lack of supporting industries has hurt, as the Vietnamese auto industry remains known only for car processing and assembling. Meanwhile, neighbouring countries like Thailand are rising up. The significant development of their supporting industries for automobile manufacturing, plus many policies to encourage investments, have kept foreigners seeking investments in Thailand.

What does Viet Nam have? There is a need for an answer so that dreams are not broken and opportunities are not missed. — VNS