Vietnamese firms conspicuously absent as auto parts industry thrives

An employee works at a foreign-owned company which produces car and motorcycle parts in Vinh Yen, outside Hanoi - Photo by Reuters

The reason for this strange situation is that the market is dominated by export-oriented foreign invested enterprises, while domestic firms are shackled by a lack of policy and regulatory support, both officials and industry insiders say.

Last year, the country exported US$4.4 billion worth of auto parts and imported the same US$3.5 billion, said Nguyen Thi Xuan Thuy, head of research at the Institute of Strategic Research and Policy under the Ministry of Industry and Trade.

This trade surplus of US$900 million mostly came from foreign direct investment (FDI) businesses, not local firms, she said at a recent conference.

The FDI businesses, including Nissei, Furukawa, MTEX, FAPV and Pronics, produce in Vietnam and export auto parts to major auto makers in China, Japan, Korea, Thailand and the U.S, she added.

Meanwhile, for the automakers in Vietnam, 90 percent of the 30,000-40,000 parts to make a car are imported, said Pham Tuan Anh, deputy head of the Department of Industry under the Ministry of Industry and Trade.

There is a lack of suppliers in Vietnam compared to other countries in the region, he added.

Echoing Anh, Thuy said that Vietnam has 20 auto assemblers, but only 226 parts suppliers. Neighboring Thailand, meanwhile, has 16 auto assemblers and 2,390 suppliers.

Many constraints

Vietnamese companies in the auto parts industry face many challenges, and one of them is the lack of assistance in terms of legal framework, said Do Huu Hao, chairman of the Vietnam Society of Automotive Engineers.

Regulations concerning parts suppliers are changed often and the tax policies are also unsuitable for the industry, he told the Voice of Vietnam online.

Another reason is that local manufacturers have limited financial capacity to compete with their foreign counterparts.

The auto part industry is heavily dependent on imported material, but the low financial capacities of local suppliers prevent them from buying more of it, Hao said.

These factors make cars made in Vietnam 10-20 percent more expensive that of Thailand or Indonesia.

Vietnam’s total vehicle sales increased 3.9 percent to 21,466 units in July from a year ago, according to the Vietnam Automobile Manufacturers' Association (VAMA).

Total vehicle sales in the first seven months of 2018 dropped 4.1 percent from the same period last year to 148,536 units, VAMA said.