The local car manufacturing industry is trying to find a suitable car model which can exploit local production standards and localisation rate while being competitive enough of surviving coming international trade agreements.
Car industry continues to struggle
Minister of Planning and Investment Nguyen Chi Dung said the country’s car manufacturing plans had not been very successful due to lack of knowledge and experience. The local car market is not large, producing 200,000 cars per year. But there are about 14 firms so each has a very small market share and none make their own cars in the country.
"An development strategy with view to 2030 has been approved. In the coming time, we'll focus on finding a car model that makes sense for Vietnam. Reputable firms will be chosen for this strategy," he said.
The government has approved of at least three development strategies to localise the industry. It first started 20 years ago with the establishment of Toyota Vietnam.
In 2005, manufacturers were asked to increase localisation rate to 40% and 60% by 2010. In 2007, the government decided to make car manufacturing a key industry with various preferential tax treatments but the local industry still hasn’t developed sufficiently.
In 2014, a new, more modest strategy was approved, stating with a localisation rate of 30-45% by 2020 and 40-70% in 2025.
Even though the government offered many preferential treatments, it failed to specify any targets for car manufacturers. A weak domestic support industry and dependence on FDI firms has been blamed for the failure of the policy.
While Vietnam is struggling with its car market, Thailand has successfully developed and focused on pickup trucks. India selected small and affordable cars to be their main products and Malaysia had made support industry their top priority. The localisation rates in many ASEAN countries including Thailand, Indonesia and Malaysia are 65-70%. This rate in Thailand is 80%.
As Vietnam joins more trade agreements, the tariff barriers will be lifted and the local industry will face even more challenges. According to the ASEAN Trade in Goods Agreement, import taxes from ASEAN countries will be lowered until they are completely abolished in 2018.
Imported cars from EU or the US could also have their taxes exempted in the next 10 years when free trade agreements are implemented.
