Local Industry

Overview:

In 1991 the Vietnamese automotive industry began to change dramatically. Auto HoaBinh formed a joint- venture partnership, called Vietnam Motors Corp. (VMC), with Colombian Motors (Philippines) and Nichmen Corp. (Japan). These two companies with a pre-existing joint-venture assemble passenger vehicle kits in the Philippines under license from various automakers.

In 1992, VMC was joined by Mekong Corp., which financial capital comes from Korea assemble sport- utility vehicle kits supplied by Mitsubishi (Japan), and a few passenger car kits supplied by Fiat (Italy). Although the Vietnamese market for motor vehicles is very small, these two assemblers were able to remain fairly because they manufactured different vehicle types and had little other competition.

In 1995 the Vietnamese government wanted to decrease consumer prices and build up the automotive industry, so they have issued three additional licenses for automotive assembly joint- ventures.

By 1996 Mitsubishi (Japan), Daewoo (Korea), and Daimler Benz (Germany) had opened joint- venture enterprises in HCMC and Hanoi to assemble passenger vehicles, light utility trucks, and passenger vans. After these plants had been established, the Vietnamese Government shocked the industry by issuing eight more licenses.

1997 Isuzu, Hino, Daihatsu, Toyota (all from Japan) and Ford (USA) had plants in operation bringing the total number of vehicle assembly plants in Vietnam to eleven.

By early 1998, in the face of stiff competition and sagging demand, Nissan (Japan) put the construction of its assembly plant in Da Nang; Peugeot (France) and Chrysler (USA) had chosen not to act on their license agreements.   

    
Now eleven automotive companies are currently assembling vehicles in Vietnam, including firms based in all four major auto - producing locations, Europe, the United States, Japan, and Korea. There are five Japanese automakers currently in production (Daihatsu, Hino, Isuzu, Mitsubishi, and Toyota), one Korean automaker (Daewoo), one Korean - backed license assembler (Mekong), one Philippine - backed license assembler (VMC), one German automaker (Daimler- Benz), and one American automaker (Ford).

Development of automotive industry in Viet Nam:

In developing countries with big markets and rising incomes, the automotive industry holds a mass of potential profit. To Vietnamese, developing this industry is more than an economic goal but also the key of successful development: the dream is to make a “real” Vietnamese car. Determining the automobile industry to be a key to the growth in the country’s industrial sector, in the early 1990’s, the Vietnamese Government offered a variety of incentives to attract both domestic and foreign investor’s money into the industry. In 2004, the Prime Minister signed Decision No. 177/2004/QD-TTg “Approving the development plan of Vietnam’s automobile industry till 2010, vision to 2020.” However, despite many expectations and privileges offered by the decree, the plan has turned out to be a bitter failure. In fact, the automobile industry in Vietnam is still stalled, it’s development hindered by major roadblocks in Vietnam’s economy and society.

              ***Obstacles:

- The biggest obstacle to Vietnam’s automotive development is traffic. According to a report by the Ministry of Construction in 2008, only 6.18% of area is used for traffic systems in Hanoi’s urban districts, while the portion in the suburbs is just 0.9 percent. In HCMC, the portion in center is between 8% and 14%, while its suburbs range from 0.2 percent to 2.8%. The global standard portion for traffic areas used in cities is generally from 15 to 20%. 

- Current Government policy with high taxation and technical requirements keeps the price of vehicles artificially high, so it reduced the number of people who can afford them. These restrictions go against the development goals set out by the government’s own plan because the high external costs limit participation in the market for automotives, it will be impossible to develop an efficient manufacturing industry.

- Automotive manufacturing relies heavily on economies of scale which also rely on significant levels of production output. In addition, without first local market’s development, it will be difficult for the industry to become competitive enough to export. While the conundrum over transport issues idles away, the government must still carry out a strong protection policy for the young automobile industry. But this also creates a disincentive to be efficient. It seems that car manufacturers are not living up to their promised rates of domestic production. In a survey of six major automotive manufacturers by the Ministry of Finance, only one had reached a 10% level of domestic production capacity. Furthermore, manufacturers still enjoy outstanding profits resulting from the distorted prices of cars in Vietnam’s market. As an example, a 4 × 4 Ford Escape 2.3L price in Vietnam is US$ 37,634, while the price of this car in the U.S. is only US$21,020.

               ***New policies for the development of automotive industry in Viet Nam:

As these above obstacles, government needs new policies to develop this industry in Viet Nam. Vietnam is a WTO Member since 2007. However for the automotive industry, the import of cars in Vietnam will be completely liberalized towards other ASEAN members under the Free Trade Agreement only in 2018.

Then, although the Vietnamese automobile industry is still in its infancy, it will be forced to make the same major decision as the industries in other ASEAN countries. The Vietnamese automobile industry should specialize in specific makes or parts within international divisions of labor developed by multinational companies? Or it should aim to produce automobiles under a Vietnamese brand? It’s an important question therefore the answer to this question also must be considered carefully from the viewpoint of which approach will be most effective in terms of the long-term development of Vietnamese industry as a whole.

Generally speaking, the Vietnamese government needs to place particular emphasis on three factors when formulating and implementing an automobile industry development policy:

- First, the Vietnamese government should maintain good relationships with foreign companies so that it can make maximum use of their business resources.

- Second, every possible policy tool should be employed to attract foreign parts manufacturers and foster local parts manufacturers.

- Third, instead of promoting a national car concept, which could encourage the production of overpriced automobiles, the government should target its policy toward the production of vehicles with high local content ratios.