Vietnam aims to down car prices by reducing component import

06:00 | 15/07/2020 Industry

(VEN) - Vietnam’s automakers import some 80 percent of their parts, raising car prices above those in neighboring countries. To lower locally manufactured car prices, Vietnam must reduce its reliance on imported parts and components.

vietnam aims to down car prices by reducing component import
Vietnamese automakers import about 80 percent of parts and components

Import pressure

Vietnam’s automobile industry has grown significantly in recent years to meet demand of the country’s fast-growing middle class. However, according to the Ministry of Industry and Trade (MoIT), Vietnam’s industrial localization rate continues to be low, with raw materials, components and spare parts mostly imported from abroad. There are only 200 auto part suppliers in Vietnam, compared with 10 times that figure in Thailand, for example. Domestic production is mainly in downstream processing, risking production disruption whenever imports are interrupted, as is the case with the Covid-19 pandemic.

A report by the Vietnam Industry Agency under the MoIT shows that Vietnam’s auto industry mainly imports parts and components from China with more than 70 percent of truck manufacturers, for example, relying on component imports from this country. The agency said it is hard for manufacturers to replace China on short notice because it usually takes three months to one year for industries with high technological content, such as electronics or auto manufacturing, to find input materials and components. Chinese imports also enjoy the added advantage of being cheaper and their designs and quality are often more diverse than many others.

Representatives of the Vietnam Automobile Manufacturers Association (VAMA) said at a recent forum that imported components account for a majority of each vehicle assembled and manufactured in Vietnam. This, in addition to depreciation costs of production equipment add 10-20 percent to the price tag of Vietnamese cars compared with elsewhere in Southeast Asia.

Support industry investment

In order to increase the independence and autonomy of domestic manufacturing industries and reduce dependence on foreign supply chains, the MoIT has proposed that the Government consider long-term solutions to accelerate the development of supporting industry. Specifically, the MoiT is asking to amend regulations of the Law on Excise Tax in order to encourage a greater localization rate for domestically manufactured cars and develop the automobile industry and its domestic supply market.

To that end, the MoIT wants resources from the central level to be integrated into local levels, focusing on investment and development of industrial projects, especially supporting industry and a number of important industries such as hot rolled steel, fiber production, weaving and dying, and new materials to reduce dependence on imports.

In addition, the government needs to adopt more preferential policies and investment incentives in order to take advantage of the shifting investment from China and other countries to Vietnam; recommend credit support packages, human resource training, creative innovation, and tax incentives to boost attraction of support industries and attract domestic and foreign investors.

The government has issued a decree applying zero percent preferential tariff on imported materials, supplies and components not domestically produced for auto manufacturing and assembly industry in the period of 2020-2024.

Lan Anh