Forecast on Automobile Market in 2008, Prospects for the Coming Years and Development Orientation for Vietnam's Automobile Industry


Limitations in Government policies

To be able to survive and develop until now, since its inception, the role of the Government in proposing policies to support the development of the automobile industry cannot be denied. However, inappropriate policies are one of the main factors hindering the development of the Vietnamese automobile industry. First of all, we must mention the protection policy. With the goal of protecting young automobile enterprises from competition from foreign rivals, Vietnam has followed the Malaysian model by erecting a protection barrier with very high tariffs. This solution is a double-edged sword. Although it achieved the goal of protecting assembly enterprises, it pushed car prices up two or three times higher than the world price level, while also stifling the development of the domestic automobile market. What is more noteworthy is that with that solution, the larger goal of developing the automobile industry, with a strong enough component manufacturing industry, has not been achieved.

Next is the lack of consistency in policies and guidelines. On the one hand, Vietnam considers the automobile industry a very important industry that needs to be prioritized for development to contribute to the country's industrialization. But on the other hand, the Government wants to limit the development of the domestic automobile market due to concerns that it will lead to overloading of the road traffic system. The imposition of special consumption tax and high import tax on automobile products is to achieve that restriction goal. In 2007 and early 2008 alone, the import tax rate changed "constantly" 5 times, plus several reductions and increases in import tax on used cars, but not in a downward direction. On the contrary, by April 2008, the import tax rate on cars had increased to 83%. This goes against Vietnam's tax reduction commitments when joining the World Trade Organization (WTO).

But more importantly, there is a mistake in choosing the direction. The view of developing Vietnam's automobile industry is to produce almost all of its own products.


All of this is reflected in the localization target and policy. To achieve this target, Vietnam has applied administrative measures, such as making the commitment on the localization rate a condition for considering granting investment licenses; imposing high taxes on imported components and spare parts to force assembly enterprises to invest in local component production. However, in a market where the number of vehicles consumed is only a few tens of thousands of units per year, and the types of vehicles are diverse, few people dare to spend a large amount of money to produce only a few thousand sets of components per year.

Meanwhile, neighboring Thailand is developing its auto industry in a different direction. Instead of producing everything itself, the country encourages businesses to participate in the global value chain. Accordingly, auto and spare parts manufacturing companies in Thailand are both suppliers and customers of components and spare parts from other companies abroad. In Vietnam, Toyota Vietnam and a number of other companies have repeatedly proposed that the Government apply the value chain model, allowing assembly companies to count the exported components they produce in the localization value. This approach would give Vietnam the opportunity to take advantage of the labor division policy of auto corporations to develop the supporting industry, but was not approved. So why doesn't the Vietnamese auto industry participate in the global production chain, identify the core product to focus on it, but keeps struggling with the goal of making an entire car with the story of localization that is outdated, and is not even allowed to be put on legal documents according to the commitment to join the WTO?

According to the forecast of the Ministry of Industry, by 2010 the market demand for automobiles will be about 138,000 units/year and the target for the localization rate at that time will be 60%. The planning also reaffirms: "The automobile industry is a very important industry, which needs to be prioritized for development". But hopefully


This will be difficult to achieve as long as policies aimed at limiting market demand for cars remain in place.

These unreasonable adjustments in Government policies have shown the weakness in adapting to the development of countries in the region as well as in the world.

Low skilled workforce

With a population of about 84 million, Vietnam has always been considered a place with a cheap and abundant labor force. However, experts say that Vietnam still lacks a highly skilled workforce including engineers and technical experts in research and development. Vietnam's only advantage of cheap labor has lost its meaning in the automobile industry when most production lines are automated. This is also one of the weaknesses and limits the development of the Vietnamese automobile industry.


CHAPTER III: SOME SOLUTIONS TO IMPROVE THE ADAPTABILITY OF VIETNAM'S AUTOMOTIVE INDUSTRY IN THE ECONOMIC INTEGRATION PROCESS

INTERNATIONAL


3.1 Forecast of the automobile market in 2008, prospects for the coming years and development orientation for the Vietnamese automobile industry

3.1.1 Forecast of the automobile market in 2008 and prospects for the coming years

If we observe carefully, we will see that in the past 10 years there is a rule that for every year of development, there is a year of decline, which means an imbalance between input and output. In 2006, the input was very abundant, the number of cars in the warehouses of many companies was so much that they could not even remember the number of cars. At that time, selling a car was really good news. Therefore, people did not dare to expect in 2007. Meanwhile, in 2007, the economy in general grew very strongly, combined with the hesitation from the previous year, which led to a situation of low supply and high demand. In 2007, all car companies achieved their targets, promising a very bright year, so most companies set plans for next year with large numbers. It is forecasted that the capacity of the car market in 2008 will be much higher than in 2007, combined with fierce competition because all manufacturers have set large targets.

Regarding taxes, the Government has recently increased import taxes to 83%, so it will be difficult to further reduce import taxes this year. Import taxes on components are already low, so if they are reduced, it is not known by how much. For domestically assembled vehicles, import taxes on components do not play a major role, but the important issue is depreciation of equipment and technology, which is related to production scale and market scale.


For Vietnam's automobile industry, the shift of joint ventures and the collapse of domestic manufacturers are two obvious risks that are being discussed. Since 2009, when foreign-invested enterprises (FDI) are allowed to import and distribute complete automobiles according to the WTO accession commitment, there will be two major possibilities for domestic automobile manufacturing and assembly joint ventures. The first possibility is that these joint ventures will completely switch to importing and distributing automobiles purely from the parent company or from factories affiliated with the parent company in other countries. The second possibility is that the joint ventures will simultaneously produce and assemble with a high localization rate some models with high sales while importing some models that are calculated to have low sales. Thus, these two possibilities can almost completely change the face of Vietnam's automobile industry.

According to experts, the first possibility will happen to businesses with low sales (such as Mekong, Mazda, Kia, Mitsubishi, Suzuki, Isuzu). The second possibility will be common in companies with high sales and good development (such as Toyota, Honda, GM-Daewoo). Both of the above options are partly dependent on the State's tax policy on imported cars. If these two possibilities become reality, the consequences for the economy will be significant, not to mention the direct impact on many workers.

Massive collapse is the second risk of the Vietnamese automobile industry, and at the same time the biggest risk for domestic enterprises. Preliminary statistics show that currently, the whole country has about 50 domestic enterprises investing in building automobile manufacturing and assembly projects with a total registered capacity of about 200,000 vehicles/year. The main products of these projects are trucks originating from Korea or the former Soviet Union such as Vietnam Automobile Industry Corporation (Vinamotor), Vietnam Engine and Agricultural Machinery Corporation (VEAM), Vietnam National Coal and Mineral Industries Group (Vinacomin) or some


Enterprises have invested quite systematically from stamping technology to electrostatic painting such as Xuan Kien Private Enterprise (Vinaxuki), Truong Hai Automobile Company (Thaco).

The trend of widespread investment in automobile production and assembly in localities is clear, and that is the risk leading to the collapse and mass bankruptcy of this business sector. Therefore, to avoid widespread investment, central and local agencies need to consider carefully in licensing, implementing and managing small-scale automobile production and assembly projects.

3.1.2 Development orientation for Vietnam's automobile industry

3.1.2.1 Perspectives on the development of Vietnam's automobile industry

The viewpoint on developing the Vietnamese automobile industry was approved by the Government in Decision No. 177/2004/QD-TTg dated October 5, 2004 on the Development Plan for the Vietnamese automobile industry to 2010, with a vision to 2020, specifically:

Firstly , the automobile industry is a very important industry that needs to be prioritized for development to effectively contribute to the industrialization, modernization and building of the country's security and defense potential.

Second , rapidly develop the automobile industry on the basis of the market and integrate with the world economy; choose appropriate development steps, encourage specialization and cooperation to promote the country's advantages and potential; at the same time actively participate in the process of labor division and international cooperation in the automobile industry.

Third , the development of the automobile industry must be linked to the overall industrial development of the whole country and the approved development strategies of related industries, in order to mobilize and maximize the resources of all economic sectors, in which state-owned enterprises play a key role.


Fourth , develop the automobile industry on the basis of absorbing advanced technology from the world, combined with promoting domestic research and development activities and effectively utilizing existing facilities and equipment, to quickly meet domestic demand for popular vehicles at competitive prices, creating a driving force to promote the development of domestic supporting industries to accelerate the production of domestic components and spare parts.

Fifth , the development of the automobile industry must be consistent with the country's consumption policy and must be synchronized with the development of the transport infrastructure system; requirements for environmental protection and improvement.

3.1.2.2 Development plan for Vietnam's automobile industry to 2010, vision to 2020

Decision No. 177/2004/QD-TTg on the Development Plan of Vietnam's Automobile Industry to 2010, with a vision to 2020, is considered the legal basis and the guideline for the direction and path of development of Vietnam's automobile industry in the coming time. The plan consists of 7 parts: the first part deals with the Government's viewpoint on the development of the automobile industry; the second part outlines the objectives of the plan, including general and specific objectives; the third and fourth parts provide planning orientations to 2010 as well as investment orientations and requirements for investment projects; the fifth part discusses the orientation of investment capital sources, and the sixth part outlines policies and solutions to support Vietnam's automobile industry. The final part outlines the roles of agencies and organizations in implementing the plan. In this content, the first four parts are summarized as follows:

Quantitative goals

The goal of the master plan is to contribute to building the Vietnamese automobile industry into a very important industry by 2020. The automobile production targets are also digitized as follows:


Table 6: Estimated production of automobiles of all types in 2010 and 2020



2005

2010

2020

Vehicle type

35,000

70,000

144,000

Car up to 5 seats

sit

32,000

60,000

116,000

Cars from 6-9 seats

sit

3,000

10,000

28,000

Coach

15,000

36,000

79,900

10-16 seats

9,000

21,000

44,000

17-25 seats

2,000

5,000

11,200

24-46 seats

2,400

6,000

15,180

> 46 seats

1,600

4,000

9,520

Truck

68,000

127,000

159,800

Up to 2 tons

40,000

57,000

50,000

2-7 tons

14,000

35,000

53,700

7-20 tons

13,600

34,000

52,900

> 20 tons

400

1,000

3,200

Special vehicle

2,000

6,000

14,400

Total

120,000

239,000

398,000

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Forecast on Automobile Market in 2008, Prospects for the Coming Years and Development Orientation for Vietnams Automobile Industry

Source: Vietnam automobile industry development plan to 2010, vision to 2020.

In addition to output targets, the plan also addresses issues of localization and export rates... The expected localization rates for popular vehicles (trucks, passenger cars, and passenger cars), high-end vehicles, and specialized vehicles are 60%, 40-45%, and 60%, respectively. Strive to export cars and

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