Automotive industry development: Increasing local content is crucial

The auto industry needs consistent policies to develop

Low local content

Vietnam’s automotive industry first appeared in 1990, initially and basically based on the motorcycle manufacturing and assembly industry. This is why the domestic automotive industry developed slowly for a long time. This is reflected with the sector’s local content that is much lower than the target of 40 percent set for 2005 and 60 percent set for 2010 for such popular vehicles as trucks, buses and cars.

Nguyen Thi Xuan Thuy from the Ministry of Industry and Trade’s Industrial Policy and Strategy Institute, said that the cost to make automobiles in Vietnam is about 20 percent higher than in other ASEAN countries. Support industries remain less developed in Vietnam so many parts are imported for auto assembly. This makes the price of domestically manufactured automobiles less competitive than that of product of the same kind from other ASEAN countries.

Most of support industry enterprises in Vietnam are small to medium in size. They are just capable of making simple parts with low technology content, such as mirrors, glass, chairs, electric wires, batteries, and plastic products, in addition to some other simple components for export.

Only two of the 18 auto part providers in Vietnam are foreign direct investment (FDI) companies, with the remainder being domestic companies, Thuy said.

Auto market open

To give a catalyst to the Vietnamese automotive industry, Thuy recommended that the State focus on promoting business connections, provide financial assistance and build capability for domestic businesses, while at the same time building a strategy for auto parts for export and import substitutes.

According to Heavy Industry Department Director Truong Thanh Hoai, the automotive industry needs to find answers to questions “Which products will be manufactured? How will they be made? Who will they be made for?” if it is to reach development targets. “It is stated in the strategy that a market needs to be created as a way showing targets for manufacturers. When market already exists, if businesses are weak and incapable of production, the State should lend them a hand,” Hoai said.

Hoai added that after they were issued, the plan for Vietnam’s automotive industry development to 2020 with a vision to 2030 and the excise tax policy had comparable impacts on the domestic automotive industry.

“The fact that import tax rates will be reduced to zero percent in 2018 will of course affect competition between auto manufacturers in Vietnam and those in other ASEAN countries. But, this might not be a major concern because there is a perse range of products on the market so alternatives are available. The room for the domestic automotive industry to develop is still there,” Hoai said.

Viet Anh