VietNamNet Bridge - The lucrative Vietnamese $12 billion per annum automobile market could help rescue the Thai automobile industry, which is now facing difficulties.

In early 2015, the Bangkok-based Chairatchakarn bought 2 million shares of HCM City-based Truong Long Automobile, becoming a large shareholder of the Vietnamese automobile firm with 22.6 percent of shares.

Chairatchakarn is a Thai automobile enterprise which trades Toyota and Hino brand vehicles. Meanwhile, Truong Long is an automobile trader in Vietnam with sales of VND1.031 trillion in 2014.

Thailand has taken its first steps towards the Vietnamese market. 

Meanwhile, just some days ago, Vichai Jirathiyut, chair of Thai Automotive Institute, suggested that Vietnam and Thailand should cooperate to develop their automobile industries instead of competing with each other.

However, Vietnamese experts look at the suggestion with dubious eyes. They do not think the cooperation would help develop Vietnam’s automobile industry.

An analyst noted that Thailand wants to expand the market for its automobile industry, which has fallen into its crisis with higher production costs and decline in sales. Meanwhile, Vietnam, with over 90 million people, is a promising market.

Thailand has “more than one reason” to choose Vietnam for cooperation: while the Vietnamese market demand is on the rise, Vietnam’s automobile industry is uncompetitive. 

Vietnam will also have to cut tariffs to zero percent from 2018 as it committed to do doing so when joining AFTA. 

If so, the automobile production costs in Vietnam would be 20-30 percent higher than in Thailand, which would make Vietnamese assembled cars less competitive than imports.

What is the scenario for Vietnam’s automobile industry?

Analysts have every reason to fear that Vietnam’s automobile market will be controlled by Thailand from 2018.

They believe that Thailand will get the biggest benefits from the tariff cuts, because Thailand is near Vietnam, which makes it easy to transport products, and it can enjoy the preferential tariff of zero percent. Meanwhile, Thai car trading companies are already present in Vietnam.

Vietnam could be flooded with Thai automobiles, while Vietnam could see a serious trade deficit as it has to spend $12 billion to import cars to satisfy demand.  The market is expected to see a boom by 2030, with the sale of 1 million cars a year.

In theory, the scenario is avoidable if Vietnam can cooperate with Thailand and join the global supply chain by making car parts.

However, few people think this will occur. 

“The only advantage of Vietnam when cooperating with Thailand is the low labor cost,” an analyst said. “As Vietnam doesn’t have any big advantage, it would be reliant on Thailand in the cooperation.”

Tran Thuy