Now key players on the local market, most of them joint ventures with foreign automobile manufacturers, must have forgotten their commitments when investing in the country, and are now seen shifting gradually to trading after being nurtured for long years as the fond child. And the pills are bitter for Vietnam to chew.

After 20 years with high resourcefulness and high ambition, with strong incentives and high protectionism, Vietnam’s automotive industry is now confined merely to assembling. And the dream of a local auto industry is getting out of reach, says Nguoi Lao Dong in a series of news stories this week on the industry.

As a newcomer in the global auto industry, starting up decades later than other countries, Vietnam has still conceived a strange view when seeking to develop a fully-fledged auto industry of its own. The springboard for country’s ambition, says the newspaper, is the commitment from foreign automakers to transfer technology to Vietnam and to gradually raise the local contents in made-in-Vietnam vehicles. Such conditions are also clearly stated in investment licenses given to auto joint ventures.

In exchange, Vietnamese authorities have rewarded automakers with numerous protectionist incentives, especially high taxes imposed on imported vehicles. If commitments on the part of foreign automakers had been realized, local contents should have made up some 60% of a car made in Vietnam now, and should continue to grow further in the coming years.

But the vision is blurred, says Nguoi Lao Dong.

According to the paper, inspections by the Finance Ministry show that all foreign firms have failed to realize their commitments, with Toyota Vietnam having local contents at only 7% in the value of their vehicles as of end-2009 compared to its pledged target of at least 30% in 2006. The ratio was only 3% at Suzuki Vietnam and 2% at Ford Vietnam.

The automobile industry so far has been confined to painting and assembling components only. It has developed in terms of sales revenue, while in-depth investment to manufacture components has been ignored, says Vneconomy.

Several economists and experts point the accusing finger at the protectionist policy towards automakers, saying the policy has in effect eradicated competition.

Pham Chi Lan, former vice chair of the Vietnam Chamber of Commerce and Industry, says on Nguoi Lao Dong that international experts are stunned at Vietnam’s commitments with the WTO over the protection for the auto industry with so high barriers and so long period. Under such an umbrella, “automakers do not have to worry about competition… and only seek to ask for more incentives.” Economist Le Dang Doanh, meanwhile, says “automakers are doing so little but we are still protecting them.” During that time, local consumers have repeatedly decried the high prices charged by automakers as well as the few choices of products due to restricted imports.

“Since the early 1990s, automakers have enjoyed so many benefits only to make broken promises on a local automobile industry,” says Vnexpress. The news website quotes Deputy Minister of Industry and Trade Le Duong Quang in a recent meeting with the media as conceding that “the strategy on developing the Vietnamese automotive industry to 2010 with a vision to 2020 has failed, with almost all objects unachievable.”

Having covered three-fourths of the race, many players now see the path ahead stonewalled, and the development of the local automotive industry now looks increasingly unviable commercially.

By 2018, tariffs on imported autos will be slashed to zero, as committed by Vietnam with the WTO. With only seven years left, developing a local auto industry is unthinkable.

The question now, says VTV, is whether foreign firms will continue investing in Vietnam’s auto industry, let alone if they will transfer auto technology to Vietnam. It is increasingly clear that foreign automakers are gradually scaling down production and are shifting to trading. In fact, many auto joint ventures are now importing more vehicles for distribution in Vietnam, being aware that the shift will bring about greater profits when tariffs are brought down.

Nguyen Van Huyen, general director of the local automaker Vinaxuki, bluntly puts it: “Vietnam’s automotive industry may no longer have the opportunity for development.”

Looking at the imminent changes to the import tariff, Thoi bao Kinh te Sai Gon says time is running out as “there is nothing to prevent auto assemblers to move production to neighboring countries, where components and services are in better supplies and cheaper.”

Thaco Group, the biggest local automaker currently with the biggest market share, is also downbeat about the manufacturing industry prospect. Tran Ba Duong, chairman cum CEO of the group, suggests on Vneconomy that Vietnam should not pursue a local auto manufacturing industry now, but rather seek to join the global supply chain for better business efficiency.

After all such arguments, according to local media, the Ministry of Industry and Trade is still drafting an amended strategy on developing the local automotive industry. Sources say main contents of the draft are not much different from the previous one that has been claimed by a deputy minister as a failure.

Apparently, the race for a local automotive industry should be dropped now, as players, after covering three-fourths of the road, have realized that they have taken the wrong path. And they have reached a point of no return.

Source: Saigon Times.