Where is the Vietnamese automobile on the world map of automobile industry?

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A large number of imported cars enjoying preferential tax rate of 0 percent are making difficulties for domestic manufacturing enterprises. Photo: Nguyen Ha

Behind regional countries about 30 years, when Vietnam laid the first bricks to build the automobile industry, in other countries, it has been very developed. After more than 20 years of development, along with the Government's encouraging policies and the efforts of firms, the Vietnamese automobile industry has recorded some achievements.

However, Vietnam's automobile industry still has many limitations. Finding solutions to develop the supporting industry to promote the development of the domestic automobile industry was discussed at the Supporting Industry Forum with the theme of Vietnamese firms participating in the global automobile production chain, held by the Ministry of Industry and Trade in coordination with Youth newspaper of Ho Chi Minh City on November 28.

Join the low segment of the value chain

At the forum, Pham Tuan Anh, Deputy Director of the Industry Department (Ministry of Industry and Trade), said so far, Vietnam has not had any leading enterprises in the production chain equivalent to regional level in the automobile manufacturing and assembly industry.

He said the Vietnamese automobile industry is currently only involved in the low segment of the value chain, which is highly dependent on the manufacturing assignments of global automobile corporations and does not master core technologies such as motors, control systems and transmission systems.

Investing in the most modern automobile factory in the world, Vinfast is selling their products at a loss of hundreds of millions of dong. Photo: Nguyen Ha

After several decades of development, the domestic manufacturing and assembly industry have not met the standards of the real automobile industry. The localisation rate for individual cars in Vietnam is much lower than the target (40 percent in 2005, 60 percent in 2010, but the actual rate is only 7- 10 percent).

The leader of the Industry Department also pointed out many Vietnamese automobile assembly firms are going on a path that other countries gave up, the trend of self-supply, exclusiveness and circleness in automobile manufacturing

At present, several enterprises in internal supply chains of each company are being formed but mainly as parent companies, the number of members in the chain is insignificant and has not yet developed into production networks as an independent firm which has a business cooperation relationship based on a long-term contract.

Outdated technology

At the forum, the Ministry of Industry and Trade's report showed the supporting industry in the automobile industry is still fragmented and the relationship between assemblers and suppliers is loose.

Especially, links between supporting and assembling enterprises, between domestic enterprises and "big names" FDI is very limited. Domestic automobile assemblers are mostly newly established and lack experience in developing supporting industry and attracting investors.

Most of these supporting industry enterprises are incapable of or struggle to fully meet stringent requirements for quality, specifications, materials, and delivery time by foreign companies. Not to mention, many technology enterprises supporting the Vietnamese automobile industry also use outdated technologies, so their prices are high and their competitiveness is low, so automobile assemblers often seek foreign suppliers.

Restrictions from policies

Do Thang Hai, Deputy Minister of Industry and Trade, emphasised the important role of the supporting industry for the country's economic development. The Government also introduced many policies and solutions to encourage the development of supporting industry. However, development in this field has been limited.

In addition to the causes and limitations from businesses and industry associations, Hai also pointed out causes related to the state management, including the development of the strategies and plans to develop the automobile industry has not focused on feasibility when defining targets and the system of policies for the development of the supporting industry for the automobile industry is still inconsistent and, unstable. In addition the management and implementation of the planning and policies for the development of the supporting industry for the automobile industry is still limited.

The forum was also attended by representatives of a number of large automobile manufacturing firms in Vietnam such as Truong Hai Automobile Joint Stock Company, Thanh Cong Group Joint Stock Company, Toyota Vietnam Co., Ltd, Honda Vietnam Co., Ltd. and representatives of associations and enterprises producing spare parts and mechanical components.

In the last two years, a few businesses have invested in modern automobile manufacturing and assembly lines, but the policy constraints, market difficulties and competitiveness of imported products make them in trouble. Photo: Nguyen Ha

A representative of Toyota Vietnam said the bgigest difficulty for the Vietnamese automobile industry is the small market size and low quantity. This makes production costs in Vietnam higher than other countries in the region, especially depreciation costs. In addition, due to low productivity, most manufacturers have to import completely knocked down (CKD) components to build cars. As a result, packaging, shipping and import duties are costly.

These enterprises have made recommendations to encourage the development of production of automobile components and spare parts, which are mainly related to tax and management policies. Specifically: free import tax on raw materials, supplies and auxiliary components to produce domestically-made components; Adjust excise tax for the part of localised value to enjoy preferences according to the domestically-made value and the value of domestically-made components; apply credit packages for development the supporting industry; include automobile products in the list of "high-tech products".