Operating under the protection of the government, auto factories in Vietnam have typically run at just 30% capacity or less. Yet auto joint venture companies make a profit. It’s a curious mix, analysts say.

Statistics from the Institute for Industrial Policy and Strategy Research show that by 2002, joint venture firms assembled around 78,300 cars, earning profits of US$24.4mil. “Only in Vietnam could car producers earn a profit operating at 30% of capacity,” said one analyst.

The Ministry of Industry encourages Vietnamese auto producers to develop popular models of trucks but Nguyen Van Khoa, General Director of Vinamotor, which specializes in large vehicles and one of the four corporations hoped to be the pillar of the market in the near future, admitted that the auto industry can’t live on trucks alone.

According to one analyst, Vietnamese customers are quietly making auto joint ventures a fortune and it is too late now to build an auto industry.

Localization fails

To protect the infant auto industry while ensuring Vietnam’s integration process, the government has extended protections in a scaled itinerary scheduled to end next year. However, the auto parts industry is practically non-existent. Localisation is less than 20% although auto producers commit to reach 30-40% after 10 years investing in Vietnam.

Deputy General Director of the Saigon Transport Mechanical Engineering Corporation (Samco), owner of recently-inaugurated Cu Chi Auto Plant, said that Samco-trademarked buses are 40% locally made. Still, auto experts have said that Samco can only manufacture certain small components like seats, glass, etc.

Udo Loersch, Chairman of the Vietnam Automobile Manufacturers’ Association (VAMA), said there is only one way to get auto prices down: cut production cost and increase localization, difficult because the market is narrowing.

Deputy Industry Minister Do Huu Hao recently commented that the price of locally-made cars is like “bailing out water based on rain level”. For example, at the current tax rate, the price for an imported car is up to US$50,000 per unit. There is no need for auto joint venture firms to sell cars of the same model at only $30,000. Mr Hao cited high price, low sales and myriad automakers as the major reasons for the failure of localisation.

How to build an auto industry?

As Vietnam fails in promoting localisation while partners pour on the pressure in WTO membership with tariff talks, managers must seek measures to open the market to regulate price. New measures force auto producers in Vietnam to reduce price and sales promotions.

However, former Deputy Industry Minister Nguyen Xuan Chuan said that it is imperative for Vietnam to have an automobile industry, speculating that opening the door is the way to promote the development of the market and force weak enterprises to withdraw. “A country with nearly 100mil people must have an auto industry,” he emphasised.

According to the Institute for Industrial Policy and Strategy Research, from now to 2010 Vietnam will invest VND18tril (around $1.16bil) in the local auto industry. Deputy Industry Minister Hao confirmed that Vietnam must develop the industry to reduce imports. He also admitted that Vietnam’s auto industry is caught in a vicious circle and it is difficult to blame any one area. In addition, the development planning for the auto industry is totally dependent on transport planning. Hanoi and HCM City lack car parks, an example of basic shortcomings influencing the domestic auto industry.

Source: VNE