Storm clouds on automobile industry’s horizon

In recent years, automobile market in Vietnam has seen year-on-year cycles of change. Often, the market is down at the beginning of the year and recovers at the end of the year. This cycle is very significant to the development of the local automobile industry. Below are opinions automobile producers and officials of Vietnam central management agencies about the overall picture of Vietnam automobile market and industry.
According to Vietnam Automobile Manufacturer Association (Vama), the business climate of automobile market in Vietnam at the start of 2004 when tax hikes started taking effect was absolutely gloomy. In order to increase sales, producers are forced to launch an array of sale promotion programmes in favour of customers. Sales have improved slightly since July but the outlook for next year is unknown as customers are buying cars before the successive increase in special consumption tax on January 1, 2005.
By the end of November, total sales of 11 joint ventures reached 32,847 automobiles, down 6% on last year. Especially, sales of car which is applied the highest special consumption tax rate, made up 85% compared with the figure of the same period 2003. As estimated by the Vama, total sales of eleven joint ventures in 2004 will reach about 36,000 vehicles, a plunge of 16% compared with the figure of 43,000 in 2003. Vama is also afraid that automobile market will see a serious decreases in coming years since Vietnam government said it will persist with the route of yearly increasing special consumption tax rates till 2007.
Given the current policies of tax hikes and limiting car use in the major cities, the local automobile industry will find survival tough given that market is narrowing and the pressure of integration is drawing nearer, said Makoto Sasagawa, director of Toyota Vietnam and president of Vama,
A large market is the prerequisite for the development of automobile industry. In this regard, it is well advised that the government should reconsider its itinerary of incremental special consumption tax increases in order to encourage producers to expand market and it (the government) should have more preferential policies for foreign investors the in automobile industry.
Vama also sent the government a proposal in which it urged the government to reconsider its itinerary of tax increases to expand market, boost the development of automobile spare part manufacturing industries and discriminate the locally assembling products and CKD imports by differences in tax.
But defending the tax hikes, Nguyen Huu Hao, deputy minister of industry said to speed up production and lift up the domestic component ratio whereby producers can reduce prices and gradually improve competitiveness of the automobile industry is the right path for the local automobile industry.
At present, Vietnam has 11 joint ventures of automobile manufacture and more than 160 assemblers component producers. In which, nearly 20 companies are automobile manufacturers and assemblers, 20 companies are manufacturing body works, and 60 produce small components.
The automobile assembling and manufacturing industry in Vietnam has attracted almost US$500 million of investment from foreign investors. In general, Vietnam automobile industry still limits in assembly so that the domestic ratio in products is low and there is almost no local producers of major components. Prices are high while the market is still small so the sale is humble and joint ventures are not enthusiastic to improve the domestic ratio.
As noted in the government’s strategy and development plan of Vietnam automobile industry, the local automobile manufacturing industry will become a national spearhead industry by 2010. At present, the number of automobiles in transport in Vietnam is still small, said Hao.
In 2003, the country had 661,057 registered automobiles of all kinds, according to police figures. The figure is too small compared with an 80 million-population economy which is in a strong development impetus. It is estimated that the country will need some 1.3 million automobiles by 2010.
If the local automobile industry fails to supply, given this demand, the country will have to spend almost US$2 billion on imports that contributes to a big trade deficit and shorten foreign currency reserve. The point is that Vietnam has to open its automobile manufacturing market once it has become Afta and WTO membership.
But, according to government policy-makers, in principle, longer protection is better.

 

Category: Business