Taking advantage of integration to rev up local auto industry

06:05 | 27/08/2020 Economy

(VEN) - Dr. Vo Tri Thanh, Director of the Institute for Brand and Competitiveness Strategy, spoke with Vietnam Economic News’ Nguyen Mai about the development orientation of the country’s automobile industry, urging deeper participation in the global supply chain and promotion of stable, long-term market growth.

taking advantage of integration to rev up local auto industry

Although Vietnam’s auto industry enjoys favorable conditions for better development, it still has many limitations. This year, Covid-19 has significantly affected the automobile market. What challenges have domestic automobile manufacturers and assemblers been facing?

In the past five years, prior to 2020, Vietnam’s automobile industry grew 12-13 percent annually, the fastest growth rate in ASEAN. However, Vietnam’s market remains small compared to other regional countries, only one fourth the size of the Thai and Indonesian markets, and half of Malaysia’s.

Imported cars account for about 40 percent of the cars sold in the domestic market, an obstacle to the auto industry’s development as a key industry. In addition, the Covid-19 pandemic has suspended production and business activities and disrupted supply chains, confronting the domestic auto industry with additional challenges.

Vietnam’s auto market is growing rapidly, with a forecast scale of up to one million cars a year by 2025. Many policies have been proposed to support the domestic auto market, but capacity remains small. What are your assessments of this issue?

The auto industry has a major impact on other industries, not only on manufacturing auto parts and components, but also on material manufacturing. Therefore, we need solutions to promote the development of domestic automobile manufacturing and assembly and to compete with imported cars. Vietnam’s auto industry, especially its supporting industry, must have a global vision, or at least a vision at regional level, instead of only developing the supporting industry for the domestic automobile industry in Vietnam. Vietnam’s auto industry needs to be associated with large value chains in order to seize advantages of international economic integration. At the same time, Vietnamese businesses must master technology and advanced research and development (R&D) capacity.

The prerequisite for effective implementation of these solutions is the completion of legal instruments guaranteeing long-term investment.

taking advantage of integration to rev up local auto industry

Do you have any suggestions on mechanisms and policies to expand domestic automobile production and assembly and improve competitiveness?

Supporting policies for the auto industry, such as tax exemptions and discounts, are very important, but not enough. We need a more comprehensive view of supply and demand, new development trends, and an industry ecosystem suitable for both production and consumption.

In my opinion, policies for the auto industry should focus on three main issues. First, stimulating supplies, solving problems related to technology transfer, skills development, labor management, and value chain connection to encourage and support domestic enterprises in manufacturing high quality products with competitive advantages in line with international commitments.

Second, stimulating demand is important. The middle class in Vietnam is growing rapidly, which stimulates increasing demand for cars. However, the current excise tax is still very high. Many people suggest that ordinary cars should not be considered as luxury items requiring excise tax. We also have to consider environmental and transport infrastructure issues as we look ahead to increasing consumption.

Third, solving problems relating to competition and development is necessary as we move towards manufacturing new types of cars. Vietnam must keep in mind that the revolution in the automobile industry will change the market over the coming 7-10 years.

Nguyen Mai