News Room - Business/Economics

Posted on 20 Oct 2009

Make or break for auto industry

Two potential buyers ponder cars at a dealership in Ho Chi Minh City’s District 5         

Vietnam’s car industry needs a much sharper strategic focus on a strong product line or it will be run over by foreign competitors in the next decade, experts say.

 

Ngo Van Tru, deputy head of the Heavy Industry Department under the Ministry of Industry and Trade, said the emphasis of the local automobile industry so far has been placed on trucks and buses, and it’s time to switch the focus to passenger cars.

 

“The automobile industry in Vietnam doesn’t have any focus,” he said. “We import, manufacture, assemble different kinds of vehicles... but only a few models can post sales of more than 100 units a month.”

 

Tru was speaking at a conference in Hanoi last week where government officials sought opinions from car makers for a strategic plan to develop Vietnam’s automobile industry, expected to be announced by the Ministry of Industry and Trade later this year.

 

He said the automobilization in the country will start at a rate of 50 cars per 1,000 inhabitants in 2020, when Vietnam’s population is set to expand to around 100 million with GDP per capita reaching US$7,000.

 

If the local auto industry can’t find a strategic product line to focus on soon, it would be too late to prepare for a fight against imported cars, Tru said.

 

Vietnam will start opening its car market in 2018. Under the Common Effective Preferential Tariff commitments, import duties on cars from the Association of Southeast Asian Nations, the regional block known as ASEAN, will be completely removed by that year.

 

“If the government can’t create a concrete plan to develop a priority product line for the car industry by the end of this year, we will cut back and then stop manufacturing cars to switch to importing cars only,” said Tran Ba Duong, general director of Truong Hai Company, one of Vietnam’s leading car makers.

 

Duong said the plan needs to be accompanied by immediate preferential tax policies to assist manufacturers that have high local content ratio and can export many cars.

 

The intention of a leading car maker to back out from production has apparently pressed home the urgent need to focus on a strategic competitive product line.

 

The model question

 

Discussions over a development plan for Vietnam’s auto industry have been going on for at least the two years. However, a final decision has not been made yet as manufacturers keep arguing about which car line should be chosen as the focus for future development and benefit from government tax incentives.

 

At the conference last week, Akito Tachibana, chairman of the Vietnam Automobile Manufacturers’ Association and president of Toyota Motors Vietnam, said Vietnam should focus on car models that have competitive price tags, can be used for different purposes and suit the traffic situation in the country.

 

Toyota Vietnam, which holds the top position in car sales and also has the highest ratio of local content, has chosen cars with 6-9 seats as its priority.

 

But other car makers didn’t agree, saying cars with four or five seats are more suitable for future development.

 

Bui Ngoc Huyen, general director of Vinaxuki, which specializes in vans and trucks, said a survey by his company found that only 15 percent of cars with seven or eight seats on Ho Chi Minh City’s streets have all of the seats filled while most drive with just two or three people.

 

Four-seat cars are therefore the more economical and practical option, Huyen said.

 

The strategic car line, when chosen, has to benefit both consumers and manufactures, he said, suggesting the government learn from development plans and taxing policies that China and India have chosen for their auto industries.

 

“Taxes on cars in Vietnam are still very high. If taxes are cut and production costs are reduced, a small car can be sold at around $7,000-8,000, or just equal to a luxury motorbike.”

 

Room for improvement

 

Economist Nguyen Duc Phu said there have been many things wrong in the policies adopted for the domestic auto industry so far.

 

For instance, special consumption taxes are imposed on cars even though they are only a normal means of transport, Phu said.

 

Moreover, taxing policies keep changing constantly, causing difficulties for both consumers and businesses, he said.

 

“The taxes on cars have been changed six times over the past 16 months... and prices fluctuated widely every single time,” he observed.

 

The policies need to be adjusted to attract more investment to the industry, and particularly to a product line, Phu said, noting that Toyota and Ford only put a few dozen million dollars into Vietnam while investing heavily in Thailand and China.

 

Phan Dang Tuat, director of the Industrial Policy and Strategy Study Institute, a government think tank, said the effects of tax policies on the car industry have been underrated.

 

“I have proposed that the Finance Ministry gives tax incentives to car makers that successfully increase their local content ratio, but there hasn’t been any response,” local online newspaper VietnamNet quoted Tuat as saying.