Transnational investor pledges with the Foreign Investment Agency have tapered off in the wake of the demise of the Trans Pacific Partnership (TPP), said speakers at the Vietnam Business Forum.

Most importantly, they said, it signals that big challenges lie ahead for the automotive parts industry and its prospects for growth and becoming a major-league player in the supply chain.

Simply put, in-country auto manufacturers are too heavily dependent on imports to support their production and are forced to purchase intermediary and raw materials in overseas markets and ship them to Vietnam.

This adds cost to production and cuts into the added value and profits of the manufacturers who would much prefer a robust local supply chain produce the needed items, the speakers noted.

The lack of a well-developed auto parts segment is the biggest obstacle holding back growth of the auto industry, which includes all those companies and activities involved in the design, development, manufacturing, marketing, and selling of motor vehicles.

The global auto industry’s principal products are passenger automobiles and light trucks as well as pickups, vans, sport utility vehicles as well as commercial vehicles (i.e., delivery trucks and large transport trucks, often called semis).

Currently there are roughly 400 small businesses in the auto parts supply chain, they said, with about a 50-50 split with half of them foreign sector businesses and the other half domestic sector.

A very limited few of them utilize advanced technologies and most produce unsophisticated easy to mass produce basic parts such as mirrors, electric components and a few plastic parts.

In addition, there are a few manufacturers that produce batteries for motor vehicles (which technically aren’t part of the auto industry), the speakers said.

In 2015 the country’s auto industry, working at less than full capacity, assembled about one-half million autos, most of which were nine-passenger vehicles.  The local supply chain met 7-10% of the demand for parts with the balance having been imported from overseas.

The bottom line, the speakers underscored, is that without significant investment (tens of billions of dollars) in the auto parts segment to develop the supply chain, the auto industry cannot compete with manufacturers in neighbouring countries Thailand and Indonesia.

Previously, the government had protected the country’s auto industry by imposing high tariffs on imported vehicles.  However, with the coming into force of the ASEAN Economic Community (AEC) in 2015 and the elimination of those tariffs— the industry is struggling to survive.

In 2018 the protective import tariffs on vehicles into Vietnam will be completely rolled back.

It is estimated that at that time the costs of production in Vietnam will be 20% more than in Thailand and Indonesia due to the lack of a supply chain and the added cost of importing versus manufacturing intermediary parts in-country.

This situation, if it were to occur, said the speakers, could sound the death knell for the country’s auto industry.

VOV