ASEAN can kill the Vietnam auto industry

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The forthcoming ASEAN Free Trade Area (AFTA) which will abolish auto import taxes in 2018, could see the death of the auto industry in Vietnam, and a significant boost for Thailand.

ASEAN + will waive taxes on car imports between ASEAN member countries, as well as Japan, South Korea and China, who are party to the agreement.

The tax cut poses a real threat to Vietnam’s fledgling auto industry, which is unable to compete with the price and quality of imports.

Ngo Van Tru, Deputy Head of the Heavy Industry Department of the Ministry of Industry and Trade in Vietnam said, “If we do not make immediate measures, Vietnam would become a big auto importer in the region.”

The auto industry in Vietnam is still very young, having begun around 20 years ago with government investment.The auto industry in Vietnam is still very young, having begun around 20 years ago with government investment.

The auto industry in Vietnam is still very young, having begun around 20 years ago with government investment.  However, under ASEAN + that gives their auto industry only five years to catch up with others in the group, including Thailand.  If their auto industry stumbles, then local production will stop and Vietnam will become an importer, such as Thailand was around 50 years ago.

There are currently 18 auto makers that belong to the Vietnam Automobile Manufacturers Association (VAMA).  Approximately 30 others have a combined investment of over USD 1 billion and an output around 200,000 cars per year.

While the target for local diesel production was set to reach 100,000 units by 2010, Truong Hai is the only company to invest in a diesel factory which will begin production in 2014.  However, will that actually happen?  Previous forecasts were for 100,000 gearboxes and 100,000 transmission systems for production in 2010.  Don’t hold your breath.  No investment has been made.

Other comparisons do not look good for Vietnam, which has only 210 auto parts manufacturers, one fifth of Indonesia’s production base and one fifteenth of Thailand’s.

According to Yoshihisa Maruta, the General Director of Toyota Vietnam, a long term development plan, stable policies and greater incentives for auto makers are needed to provide a necessary boost to Vietnam’s auto industry.

The GM Vietnam General Director, Guarav Gupta, called on the Government to develop a detailed plan to support the local auto industry and boost investor confidence.

It seems that the Ministry of Industry and Trade has revised the auto industry master plan in a bid to save the auto industry.

The Vietnam Automobile Development Plan, which looks as far as 2020, classifies market opportunities to help producers meet the demands of market segments.  The plan aligns with current development plans to revolutionize the manufacturing sector, according to Tran Tuan Anh, Deputy Minister of Industry and Trade.

Anh said the Ministry has added three “breaking” solutions to the revised plan, including stable policies for the auto industry, producing environmentally-friendly vehicles (similar to the Thai eco-car concept) and creating favorable conditions for automakers.

According to the Vietnam Automobile Manufacturers Association (VAMA), domestic auto sales exceeded 49,800 units in the first half of this year, up 16 percent on 2012 figures.

Car and truck sales grew 22 percent and 13 percent respectively, from 2012.  VAMA forecasts indicate sales will reach 112,000 units after a proposed 10-12 percent cut in auto registration fees.

Referring back to the forthcoming ASEAN + agreement, currently Thailand’s 2013 Thai domestic automotive market is projected at 1.3 million units or around a 9.5 percent decrease compared to the previous year and 10 times the Vietnam production.