According to the Tax Policy Department, the car market segment in Vietnam is growing very rapidly. The motorization period is nearing and the demand for automobiles is increasingly high. Analysts believe that the Vietnamese market will have a scale of 1 million products by 2025.

According to Ministry of Public Investment (MPI), many foreign investors have shown their interest in investments in Vietnam. They are awaiting moves by Vietnam’s management agencies and will flock to Vietnam if they see good signals.

This is a great opportunity to develop the automobile industry. If it cannot be embraced, Vietnam’s automobile industry will just assemble and produce on a small scale.

However, many analysts think the opportunity will be missed.

In order to develop the automobile industry, Vietnam needs to develop supporting industries, or vendors who provide car parts to assemblers.

The supporting industries now are weak with enterprises using outdated technologies, lacking production experience. The car parts which can be made in Vietnam all have low added value, such as seats, electric wires and plastics, while the production costs are high.

Vietnam exported $5.46 billion worth of car parts in 2019. However, the exports were mostly from foreign invested enterprises (FIEs).

FIEs bring machines and technologies into Vietnam, and then import materials to run production in Vietnam, because they want to exploit the low-cost labor force in Vietnam and enjoy the investment incentives offered by the State.

FIEs bring machines and technologies into Vietnam, and then import materials to run production in Vietnam, because they want to exploit the low-cost labor force in Vietnam and enjoy the investment incentives offered by the State.

Since the Vietnamese market is small, it doesn’t attract investors. Entering Vietnam in 2007, Enkei Company (Japan), which provides car parts to Toyota, Truong Hai, Honda, Nissan and Mitsubishi, put out 24,000 rims of wheel, its major product, a month in 2019.

The company needs orders for at least 100,000 products a month to achieve production efficiency. With the current small orders, each product has a production cost 10 percent higher than other regional countries.

According to Toyota, in order to make plastic parts of cars, including front bumper, rear bumper and taplo board, investors need to have investment capital of $12 million. It takes about five years to recover investment capital.

The factory needs to run with a capacity of 60,000 products a year and revenue of $3.8 million a year to be able to take back investment capital.

In Vietnam, Toyota Vios is a car model with the highest output and only 27,000 products are produced every year. In other words, the investment will be ineffective.

Meanwhile, it is not easy to purchase materials in Vietnam. A representative of Winnercom Vina, a 100 percent South Korean invested enterprise, which runs a factory in Ninh Binh making antennae for cars, said all the materials are imported from other countries.

In fact, there are suppliers in Vietnam, but the prices they offer are higher.

Experts say Vietnam’s supporting industries cannot develop because the market is too small.

In 2019, the total automobile output was 281,000 products of different kinds, while the car output was about 200,000. Of these, only 11 models had output of 6,000 products a year or higher, and the highest figure was 27,000 products a year.

The Vietnam Association of Supporting Industries (VASI) said that over the last 30 years, the government has tried to develop the automobile industry.

This can be seen in the Politburo’s Resolution No 23 dated March 22, 2018 which says Vietnam will prioritize the automobile industry and support the development of vendors (supporting industries) for the industry.

However, Vietnam’s policies have not brought the desired effects.

The number of private cars is increasing rapidly and this is a trend in a country with 100 million people and a developing economy. The government needs to build comprehensive policies on transport infrastructure, taxes and fees.

The weakness in Vietnam’s policy building is the lack of long-term vision, so the policies are unstable, not clear enough, and unpredictable.

The demand for cars in Vietnam is increasing rapidly. However, more and more imports are arriving, especially from ASEAN because of the preferential tariff of zero percent, putting pressure on domestic production.

Enkei Vietnam said the number of orders has decreased by 10 percent, while other manufacturers are in danger of going bankrupt.

The opportunities to develop the automobile industry are shrinking. The output of domestically assembled products is decreasing with a drop of 12 percent in 2019 compared with 2018. Meanwhile, the imports increased by 82 percent. 

Tran Thuy

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