Government to work on boosting Vietnam’s automotive industry

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Government to work on boosting Vietnam’s automotive industry

The Vietnamese government plans to work with foreign and domestic automakers in hopes to make the nation’s automotive industry a key economic sector, which would substantially contribute towards economic growth and meet domestic demand for passenger vehicles.

Prime Minister Trinh Dinh Dung recently spoke on the topic with domestic automakers and representatives from ministries to highlight the importance of the automotive industry. During the meeting, he said that many opportunities exist as the domestic market develops along with the regional market.

The deputy Prime Minister further empathized that taking bold actions and assuring unanimity between the government and relevant stakeholders are key to boost the industry’s expansion. In regards to this, the PM had asked automakers to develop more initiatives in the industry by strengthening co-ordination among domestic businesses and international enterprises.

At present, Vietnam’s automotive industry consists of more than 400 businesses, with the majority being small to medium sized enterprises (SMEs). From 2001-2014, the industry hit an average growth rate of 17 per cent annually. Meanwhile, government spending contributed more than USD 1 billion per year, leading to job opportunities for more than 100,000 workers.

According to the Ministry of Industry and Trade, Vietnam’s total production capacity for passenger vehicles is about 460,000 units per year, of which 47 per cent are foreign-invested businesses, while the remaining domestically owned.

In 2010, locally assembled trucks and passenger vehicles with ten seats and above met 70 – 90 per cent of the market’s demand, while reaching a high rate of using locally supplied parts from 45 – 55 per cent. However, the industry failed to gain the target of supplying 60 per cent of local parts for vehicles with nine seaters and below.

While the industry was able to produce some simple parts – such as mirrors, glass, seats, electric wires, batteries, tubes and some plastic products – few had invested in production technologies used in manufacturing auto bodies.

In terms of purchasing a vehicle, car prices in Vietnam remain high compared to other Asian countries. “To purchase a passenger vehicle in Vietnam, customers must pay 3 types of taxes and 5 different fees. This leads to a price hike in Vietnamese cars”, according to Michael Sieburg, Associate Partner at Solidiance (an Asia-focused management consulting firm) based in their Ho Chi Minh office.

However, with free trade agreements rolling out in the near future, import taxes on auto vehicles will be greatly reduced, meaning that opportunities are likely to be seen in the sector. Small passenger vehicles with engines under 2,0l will benefit the most from these cuts and will continue to see strong sales growth as Vietnam’s middle income group also rises.

It is expected that there will be a new investment wave from global automakers setting up facilities in Vietnam with an eye on the regional market, fueled by the government’s policies aimed at encouraging and luring investment. This includes prioritizing to develop the part supply industry by pushing co-operation, expanding markets and implementing policies to attract investors.

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