Car prices in Vietnam are 2 times higher than in other countries in Southeast Asia? What are the causes of limitations in the automotive industry in Vietnam?
How to evaluate the results achieved in the automotive industry in the period of 2018-2022?
On March 6, 2023, the Ministry of Industry and Trade of Vietnam issued Official Dispatch No. 1154/BCT-CN in 2023 assessing the impact of not applying the regulation on the degree of fragmentation to imported automobile components.
According to that, the Ministry of Industry and Trade of Vietnam received Notice 25/TB-VPCP on the conclusions of Deputy Prime Minister Le Minh Khai at the meeting on receiving and explaining the opinions of Government members on the draft Decree on the Export Tariff, Preferential import tariff, List of goods and absolute tax rates, mixed tax, import tax outside the tariff quota (draft decree) and draft Decision of the Prime Minister regulating the application normal tax rates for imported goods.
The Ministry of Industry and Trade of Vietnam assesses the impact of the policy as follows:
Vietnam's auto industry has developed quite rapidly in recent years. By the end of 2022, the whole country has more than 40 automobile manufacturing and assembling enterprises with a production and assembly output that meets about 70% of the domestic demand for cars under 9 seats. Many major companies in the world have production and assembly activities of automobiles in Vietnam. Some domestic enterprises have been deeply involved in the global automobile production chain, some products have been exported to Thailand, the Philippines, etc., especially for trucks and buses.
With a population of about 100 million people, Vietnam is currently the leading potential auto market in ASEAN. However, compared with other countries in Southeast Asia in terms of developing the automobile manufacturing industry, Vietnam is disadvantaged because it had to integrate into the region when the market was still small to organize large-scale production and business. Low localization, high car prices.
According to data from the Vietnam Register, the output of domestically manufactured and assembled cars from 2018 to now is as follows:
- Domestic automobile manufacturing and assembling enterprises have initially affirmed their role and position in the domestic automobile market and have made strong progress in both quantity and quality. By the end of 2022, the total assembly capacity of automobile factories in Vietnam by design is about 755,000 vehicles/year, of which the foreign-invested sector accounts for about 35%, and domestic enterprises account for about 35%. 65%.
- Total assembled capacity according to design for cars with less than 9 seats basically meets domestic demand. In the past 3 years, the production and assembly output of cars with less than 9 seats has actually met about 70% of domestic demand.
- The quality of domestically produced and assembled vehicles and imported cars is strictly controlled, ensuring the interests of consumers.
- A number of products have been exported to Thailand, the Philippines (passenger cars, passenger cars manufactured and assembled by Thaco) and the United States (Vinfast's electric cars).
- Contributing to the state budget billions of USD/year and creating jobs for hundreds of thousands of direct workers.
Compared with the goals defined in the Strategy for the development of the automobile industry in Vietnam to 2025, the vision to 2035 was approved by the Prime Minister in Decision No. 1168/QD-TTg dated July 16th/ 2014 (Strategy), Vietnam's auto industry has achieved certain results. Specifically:
+ Regarding the number of domestically produced vehicles: The strategy determines that by 2020, the total vehicle production will reach about 227,500 units. However, in fact, the total production of domestically produced vehicles in 2020 has reached 323,892 units, 1.42 times higher than the strategic target.
+ Regarding the ratio of cars manufactured and assembled to domestic demand: The strategy determines that by 2020, domestically manufactured and assembled vehicles will account for about 67% of domestic demand. According to data from the Vietnam Automobile Manufacturers Association (VAMA), domestically manufactured and assembled vehicles account for about 65-70% of the total market, basically achieving the target set out in the Strategy.
+ Regarding supporting industries: The strategy determines that by 2020, the proportion of domestic production value of cars with up to 9 seats will reach 30-40%, from 10 seats or more will reach 35-45%, trucks reach 30-40%. Up to now, the value of domestic production of buses has reached 60%, trucks have reached 35-40%, and cars have an average rate of 25%. Thus, the Vietnamese auto industry has basically achieved the target of the domestic manufacturing value ratio set out in the Strategy for buses and trucks. However, the rate of domestic production and manufacturing value for cars up to 9 seats has not reached the set target.
+ Regarding exports: According to data from the General Department of Customs, the export value of auto parts and components in 2020 will reach USD 5.71 billion, 1.42 times higher than the target of USD 4 billion set out in the Strategy. However, the target that by 2020, the total number of exported vehicles will reach about 20,000 units set out in the Strategy, has not been achieved.
Car prices in Vietnam are 2 times higher than in other countries in Southeast Asia? What are the causes of limitations in the automotive industry in Vietnam? (Image from the internet)
The price of cars in Vietnam is 2 times higher than in other countries in Southeast Asia?
This is one of the outstanding issues as well as limitations in the automobile manufacturing industry in Vietnam, the Ministry of Industry and Trade of Vietnam assesses this issue in subsection 2, Section I of Official Dispatch No. 1154/BCT-CN in 2023 as follows:
- Although certain results have been achieved, the domestic automobile manufacturing and assembly industry has not yet met the criteria of the real automobile manufacturing industry (mostly new at the level of simple assembly). The production line mainly consists of only 4 main stages: welding, painting, assembly, and inspection.
- The selling price of cars is still high compared to other countries in Southeast Asia. The price of cars in Vietnam is nearly 2 times higher than that of other countries in Southeast Asia (Thailand and Indonesia), and this number is even larger than that of countries with a stably developed auto industry such as the United States and Japan.
- The Ministry of Industry and Trade of Vietnam also stated that the biggest reason why car prices in Vietnam is high is due to high taxes and fees, and low accumulated domestic output (enterprises are producing far below the designed capacity).
- Although the quality of domestically produced and assembled vehicles has been improved, it is still not as good as imported cars; cooperation - association and specialization between enterprises in manufacturing - assembling automobiles and producing spare parts and components have not been created; The system of material suppliers and large-scale component manufacturers has not yet been established.
In addition, the Ministry of Industry and Trade of Vietnam commented that another limitation in Vietnam's automobile industry is the localization rate in the production of auto components.
For personal cars with up to 9 seats: the results achieved are still low compared to the set target.
Localized products such as tubes, tires, seats, mirrors, glasses, wire sets, batteries, plastic products... Up to 80-90% of the main raw materials are used for the production of components such as: Alloy steel, aluminum alloy, plastic beads, technical rubber are currently imported. Mold materials are mainly imported. Every year, businesses have to import more than 5 billion USD of components and spare parts for vehicle production, assembly and repair.
What are the causes of limitations in the automotive industry in Vietnam?
In subsection 2, Section I, Official Dispatch No. 1154/BCT-CN in 2023, assessing the limitations in the Vietnamese auto industry, the Ministry of Industry and Trade of Vietnam points out the causes of the existing problems and limitations as follows:
- Objective reasons
+ Limited domestic market capacity. The market is small, fragmented by many assemblers and many different models, making it difficult for manufacturing companies (both manufacturing, assembling cars and producing spare parts) to invest and develop production. In large numbers, supporting industry enterprises (supporting industry) have not been able to access automobile production chains abroad.
+ GDP per capita in the recent period was not enough for the majority of people to own cars as well as promote the domestic automobile industry to develop and generate profits. According to Timothy J. Sturgeon and Richard Florida, GDP per capita must be around $4,000 per year to fuel the rapid growth of the auto industry. The GDP per capita of our country in recent years has not yet converged enough factors to promote the rapid growth of the automobile industry.
+ Countries with a more developed level in Southeast Asia (such as Thailand, Indonesia…) have had policies to attract large-scale and effective investment projects from global automobile corporations, exerting fierce competitive pressure on Vietnam's automobile industry.
- Subjective reasons
+ The development policy of the automobile industry in recent times has not been synchronized and stable, so it has not supported the development of the automobile industry as well as the supporting industry of the domestic automobile industry.
+ Not active in basic materials: Basic materials for the production of supporting industry products for the auto industry such as manufactured steel, plastics and plastics... mainly still have to rely on imports. This dependence has reduced the initiative in production and reduced the competitiveness of products.
+ The production capacity of domestic enterprises is still low. The supporting industry enterprises in Vietnam's automobile industry are small in number, which are mechanical companies, manufacturing plastics and plastics, with low technology levels and no experience in the automotive industry.
Because they are small and medium enterprises, it is difficult for Vietnamese auto supporting industry enterprises to access credit sources, have weak production and business management skills, and fail to meet the requirements of automobile manufacturers.
+ The attraction of FDI sources for the development of the automobile industry does not have tight binding mechanisms for foreign car companies to increase the localization rate, but only focuses on operating according to the method of assembly.
+ The weak transportation system (mainly due to poor traffic organization) has significantly affected the market demand, making the economy's demand for automobile use less large, and more reduced.
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