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Chapter 2. OVERVIEW OF VIETNAM’S AUTOMOBILE INDUSTRY

Chapter 2. OVERVIEW OF VIETNAM’S AUTOMOBILE INDUSTRY

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- Type of Business:

car assembling;

3



Vietnam - GM

(VIDAMCO):



Deawoo - Operation started in

1996;



- JV between Vietnam and Operation

South Korea;

continues;

- Type of business:

Car asembling;

4



Vina

Star

Corporation:



Motors - Operation started in

1995;



JV

between

Vietnam, Operation

Malaysia and Japan

continues;

- Type of business:

Car asembling and

CBU import;

5



Mercedes Benz Vietnam:



- Operation started in

JV

between

Vietnam, 1996;

Germany, Singapore

Operation

continues;

- Type of business:

Car asembling and

CBU import;



6



Daihatsu Vietindo (Vindaco): - Operation started in

JV between Indonesia and 1996;

Vietnam



- Operation stopped

in 2006;

- Type of business:

Car asembling;



7



Suzuki Vietnam:



- Operation started in

JV between Vietnam and 1995;

Japan

Operation

continues;

- Type of business:

Car asembling and

CBU import;



8



Ford Vietnam Ltd:



- Operation started in

1995;

13



8



JV between Vietnam and the Operation

USA

continues;

- Type of business:

Car asembling and

CBU import;

9



Chrysler Vietnam Ltd:



- Operation started in

JV between Vietnam and the 1995;

USA

- Operation stopped;

- Type of business:

Car asembling;



10



Toyota Vietnam:



- Operation started in

JV between Vietnam, Japan 1995;

and Singapore

Operation

continues;

- Type of business:

Car asembling and

CBU import;



11



Isuzu Vietnam:



- Operation started in

JV between Vietnam and 1995;

Japan

- Operation

continues;

- Type of business:

Car asembling and

CBU import;



12



Vietnam – Singapore motor - Operation started in

industrial company:

1996;

JV between Vietnam and - License withdrawn;

Singapore



13



Hino Motors Vietnam:



- Operation started in

JV between Vietnam and 1996;

Japan

- Operation

continues;

- Type of business:

Car asembling and

CBU import;



14



Nissan TCM Vietnam Co., - Operation started in

Ltd:

14



8



JV

between

Vietnam, 2008;

Denmark and Japan

- Operation

continues;

- Type of business:

Car asembling and

CBU import;

15



VINAMOTOR:



- Operation started in

100% capital invested by 2003;

Government

- Operation

continues;

- Type of business:

Car asembling;



16



Vinacomin Motor:



- Operation started in

100% capital invested by 1994;

Government

- Operation

continues;

- Type of business:

Car asembling and

CBU import;



17



VINAXUKI Motor:



- Operation started in 2004



100% capital invested by private - Operation continues;

companies

- Type

of business: Car

asembling and CBU import;

18



Truong Hai Motor:



- Operation started in 1995;



100% invested by Vietnamese

private companies



- Operation continues;

- Type of business: Car

asembling and CBU import;



Source: Ministry of Planning and InvestmentWe find that most of the

world’s leading car manufacturers from three automobile centers of USA,

Europe and Japan are present here in Vietnam. Total investment capital is

over 700 million USD, total legal capital is over 400 million USD and total

designed capacity is about 200,000 cars/year. Joint venture enterprises play

a key role in automobile industry. They turn Vietnam’s Automobile

Industry from zero into fulfilling domestic automobile demand.

State-owned enterprises such as Transinco, Veam also contribute to

development of Vietnam’s automobile industry although their contribution

is still small. We have now 52 domestic enterprises involving in assembling

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8



vehicles but the production is still low and the technology is still

underdeveloped. Therefore, referring to Vietnam's automobile industry,

most people only talk about the operation of 11 automobile

manufacture/assembly joint-venture enterprises.

On the other hand, production and assembly of automotive joint venture

companies in Vietnam has not shown modernity in automobile

manufacturing. A standard car factory must have at least four basic

processes, including stamping, welding, painting and assembly, whereas

the automobile joint ventures in Vietnam (except for Toyota which has

stamping process) have only 3 last processes (welding, painting and

assembly). All these 3 processes do not require high technology, thus not

improve the localization rate of products.

After this period, the joint ventures develop more car styles, pay attention

to importing cars (e.g., Mercedes, Toyota). Besides, there are some

motorcycle manufacturing joint ventures investing in automobile

production. They are VMEP and HONDA. These joint venture companies

have created a quite busy automotive market in our country

2.1.2 Development of domestic automobile manufacture/assembly

enterprises

After the appearance of the car manufacturing joint venture enterprises,

domestic automobile factories have gradually formed and developed as

Truong Hai, Vinaxuki, Cuu Long, Veam, etc.

In domestic car assembly enterprises, they focus primarily on light trucks

providing mainly for domestic market and avoiding competition with other

brands of joint venture enterprises such as Truong Hai with Proto, Force;

Xuan Kien with Vinaxuki; Cuu Long with TMT. Afterwards, some

domestic factories have begun to assemble individual cars (sedans) with

little-known and low price brands such as Xuan Kien with Chinese brands,

Truong Hai with Kia, Hyundai (Korea) and more recently, Mazda (Japan).

Overall, the domestic automobile factories are less developed, they only

specialize in car assembly, and they do not have private car brand because

of weak financial resources and automotive technology.

Currently, Vietnam’s automotive industry specializes in assembly only,

including the following types:

-



SKD (Semi Knocked Down): cars to be assembled from

components, cluster, imported unconnected details.



-



CKD (Completely Knocked Down): is a complete kit needed to

assemble a product. There are two forms of this type: CKD1 and

CKD2.

8

16



-



IKD (Inteopally Knocked Down) cars to be assembled from

components, cluster, unconnected details. Unconnected details can

be imported or made in Vietnam. Body and chassis are made in

Vietnam.



While some regional countries like Thailand, Indonesia is focusing in depth

on the type of IKD, both 11 automobile joint ventures in Vietnam have

recently moved from simple assembly (SKD) to detailed assembly (CKD) .

2.1.3 Vietnam’s domestic automobile market

In December, 2010, turnover of members of VAMA got 12,485 vehicles,

17% decrease compared to that of December, 2009. In which, sale of multipurpose vehicles fell 19%, cars 21% and commercial vehicles 13%.

Output of entire sales in 2010 reached 112,224 vehicles, 6% decrease over

the same period last year with decrease of commercial vehicles of 4%, cars

of 3% and multipurpose vehicles of 13%. (See summary table below).

Table 2.2



The sale of cars of VAMA’s members in 2010



Car

Cross-over cars

MPV cars

SUV cars

Minibus, Bus

Pick-up & Van

Others

Total

Bus chassis

Source: VAMA



North

2,336

468

607

394

1,913

5,718

7



Central

488

150

206

79

670

1,593

-



South

1,249

700

859

344

2,022

5,174

108



Total

4,073

1,318

1,672

817

4,605

12,485

115



Vehicle consumption is reduced compared to that of the previous year due

to inflation in the economy and high exchange rate between Vietnam dong

and the dollar. Also, it can also be seen that car consumption in our country

is quite low compared to that of the region and the world. The reason is:

- First, Vietnam's market is too small compared with the car industry,

per capita income is low. According to calculations by economists, a

country must achieve GDP per capita of about $ 1,000 per year to

create a large enough market for the automotive industry with stable

profit and over $ 3,000 per year to ensure a rapidly-developed

automobile industry. Whereas, Vietnam has achieved GDP of

approximately U.S. $ 800-1000 per year per person.

- Second, massive import of old cars, which are cheaper than cars

manufactured by automobile joint ventures, reduces market share of

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automobile joint ventures in Vietnam. Massive import of new cars

with equivalent price also affects the market share in the same way

in one hand and in the other influences to demand side.

- Third, the price of cars produced and assembled in Vietnam is much

higher than the price in the region and in the world. The reason is

that most of the parts and components are imported.

One important reason is that the automobile industry of Vietnam is very

young, only developed in about 10 years so most plants are new with high

capital investment and long period of depreciation. These should lead to

high cost and low competitiveness.

Table 2.3. Comparing prices between domestic cars and foreign cars(brand

new cars)

Car Makers



Model



Prices in

Vietnam



Prices in

USA



Difference



TOYOTA



Corrolla



24,000



13,000



185



DaimlerBenz



Mercedes-Eseries



74,500



45,000



166



Mazda



626



31,330



20,500



153



BMW



3-series



49,000



35,000



140



BMW



5-series



78,000



15,000



173



Average



(%)



163



Source: The planning on development of Vietnam’s automobile industry till

2010

2.2. CONTRIBUTION OF VIETNAM’S AUTOMOBILE INDUSTRY

Being a young industry in Vietnam, Vietnam’s automobile industry has

certain contribution to Vietnam economy, as follows:

2.2.1. Contribution to economic development through investment

Vietnam’s automobile industry contributed a very big amount of investment

capital to the economy. For joint venture enterprises, till June, 2001, total

investment capital was 326,813 million USD, making up 2.39% of total

foreign investment capital. This amount of capital is equivalent to total

capital of Vietnam’s mechanical industry after 40 years of establishment.

This is a very high rate, initially confirmed the role of the automotive

industry for the economic development of Vietnam.

According to VAMA, investment capital of several members of VAMA is

as follows:

18



8



Table 2.4. Investment capital of some VAMA’s members

Total investment capital



Legal capital



(USD)



(USD)



No.



Name



1



Ford Vietnam



102,000,000



-



2



GM



32,000,000



10,000,000



3



Honda



209,252,000



62,900,000



4



Isuzu



50,000,000



-



5



Mekong Auto



35,995,000



20,000,000



6



Toyota



89,600,000



49,140,000



7



Truong Hai



90,000,000



-



8



Vietnam motor



58,000,000



-



9



Suzuki



20,000,000



-



Source: VAMA

Compared with the initial capital investment (Table 2.1), the investment

level increased significantly.

2.2.2. Contribution to state budget

In the early 2000s, the automobile production joint ventures have

contributed significantly to the state budget. The total contribution of joint

ventures to the state budget by the end date of 30/06/2001 is 154,323,000

Dollars. If calculated by the method of simple averages, the average

contribution rate in the period 1996-2000 is $ 30,864,600 per year

In 2000, the vehicle sale is increased sharply; the joint ventures have

contributed to state budget with a record amount of $ 45,467,846.

Table 2.5. Contribution to state budget from car manufacture joint venture

enterprises

1/1/200030/6/2001



Name



Year 2000



Total



Toyota



14,527,952



Vindaco



1,147,499



476,029



3,958,637



Ford VN



4,105,000



2,303,000



9,611,000



VMC



5,776,300



2,737,200



33,961,736



Hino Motors VN



26,502



103,397



646,419



Vidamco-



5,560,000



4,061,000



16,417,000



41,874,152



19



8



Daewoo

Suzuki



5,610,000



2,957,000



33,318,000



Isuzu



1,423,064



1,265,355



4,469,042



Mercedes Benz



2,403,842



2,826,035



14,467,978



Total



45,467,846



21,665,938



191,326,099



Source: Ministry of Industry

According to VAMA, only 18 members of VAMA for 6 years from 2000 to

2006 have contributed $ 1.2 billion in taxes to the state, creating stable jobs

for 8,500 employees in the automotive sector in particular and about 35,000

workers in supporting industries.

Some domestic automobile enterprises are successful in making their own

automotive brands such as Samco Vietnam, Truong Hai Auto, Vinaxuki…

Their products are more or less known to the domestic market. These

enterprises play an important part in economic development. Their products

involve in the public sector, agriculture, industry and services.

2.2.3 Creating jobs

Table 2.6. Number of employees working in car manufacture joint venture

enterprises

No.



Name



Total employees till 30/6/2002



1



Toyota



371 (9)



2



Vindaco



133 (4)



3



Ford VN



260 (3)



4



VMC



557 (14)



5



Hino Motors VN



34 (2)



6



Vidamco-Daewoo



410 (4)



7



Suzuki



166 (2)



8



Isuzu



124 (4)



9



Mercedes Benz



382 (3)



10



Mekong



304 (5)



11



VinaStar



231 (9)



Total



2,972 (59)



Source: Ministry of Industry.

8

20



For Truong Hai Company, till 2010, number of employees was up to 1,500

persons.

2.2.4 Technology transfer

Most production lines contributed by the foreign partners of the joint

venture enterprises were made in the early of the 90s in leading

industrialized countries. Therefore, these lines are still in good condition

with high performance and enable the production of modern products.

However 100% of these production lines are only for assembly form of

CKD2 (some components have not been assembled into the frame), IKD1

(localization ratio below 10%) will not stimulate the production of parts

and accessories in Vietnam, but mainly develop assembly technology. In

addition, all the R& D are conducted in foreign firms, not Vietnam, so

Vietnamese engineers just follow all the instructions from the foreign side

and they do not have condition to develop their professional ability.

2.3



FACTORS AFFECTING THE DEVELOPMENT

VIETNAM’S AUTOMOBILE INDUSTRY



OF



2.3.1 Internal factors

In general, according to development strategy of Vietnam’s automobile

industry in period of 2001-2010, goal of protection of domestic automobile

industry was got basically. Otherwise, prices were too high compared to

world’s price level and the goal of development of Vietnam’s automobile

industry failed. There are many reasons for that but one important reason is

we have regulated the industry with a single tool in more than 10 past

years. It is tax. Whereas, we ignored many other factors such as new

technology, quality control, etc.

Another reason for that is ability of management levels. They do not

distinguish between domestic manufactured cars and domestic assembled

cars.

Hereafter, we consider some internal factors affecting the automotive

industry as follows:

Low income:

People's income remains very modest compared to other countries in the

region and the world. Therefore, most people are using less expensive

vehicles, such as buses, motorcycles, bicycles. In a past few years, although

the number of people belonging to the middle class in Vietnam has

increased but the number of people buying cars is still low.

Table 2.7

countries



Comparing income of employees in Vietnam and in other

8

21



Name



GDP per capita



Difference



(USD/year)



(times)



Japan



23,480



13,4



Hong Kong



21,830



12,4



Singapore



27,740



15,8



Malaysia



7,370



4,2



Thailand



6,020



3,4



Philippines



3,380



1,9



Indonesia



2,940



1,7



Vietnam



1,755



1,0



Inconsistency and frequent change of policy:

According to feedback from the domestic automobile enterprises,

production and business environment in Vietnam still lacks the conditions

for them to focus on long-term plans such as investment in manufacturing

components and parts, investment in production of heavy-duty vehicles,

multiple-seat buses. They said that government policies, particularly tax

policy, often change and are unreasonable causing many troubles. At

present, we only have two tax levels (CKD1 and CKD2) for CKD tariff,

one tax level for spare parts. For example, tax level for importing spare

parts of under 5 seat cars is 60% of CIF value. Therefore, fewer than 5 seat

cars assembled in Vietnam are protected by tariffs and excise taxes of

320% of CIF value. Whereas the imported components for assembly in the

form CKD2 pay only 20% import duty and VAT of 5%. The lack of

uniformity was one of the causes of fraud and tax evasion of opportunists.

Within about tariffs for imported components, the Ministry of Trade and

Industry and Ministry of Finance has not yet agreed. Therefore, they can

not support domestic production.

Poor infrastructure:

Currently, many Asian countries have quite good high-speed road system

like Singapore, Malaysia, Korea, China, etc., in which the ratio of the

length of the highway and the total length of road network is relatively high

(for example, 4.4% for Singapore and 2.5% for Korea). Whereas Vietnam

does not have a highway in the true sense of the word though Trung LuongHo Chi Minh highway has just been put into operation. 602 communes

throughout the country also has no motor roads to the center. Furthermore,

Vietnam is still in a serious lack of parking lots and garages which are

considered as indispensable static traffic system for transportation by car.

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Poor management and technology:

Vietnam is ranked as country with backward technology level. Technology

level of Vietnam lagged far behind the general technical level of the world

from 50 years to 100 years. Obsolete technology should account for 60 to

70% per product unit with high energy consumption, high production costs

and low quality.

Level of the workforce currently can not meet diversified and growing

needs of the economy. In the labor force, skilled team makes up only 10 to

15%, a low rate in comparison with that of the region and the world. The

general level of knowledge and skills of the workforce are still restricted

leading to low efficiency in using equipment.

2.3.2 External factors

Imported vehicles:

One of great difficulties that automobile businesses face is amount of

imported automobiles continue to rise.

In the period up to early 2002, the number of imported cars increased every

year and this adversely affected significantly the automotive industry in the

country

Table 2.8



Number of annual exported cars



Year

1997



1998



1999



2000



2001



2002 (first

9 months)



Kind of cars

Carrying people

cars



3,356



2,762



2,437



2,870



3,056



2,580



Freight cars



10,619 14,440 14,892 18,986 19,170



15,769



Total



13,975 17,202 21,076 21,856 22,226



18,349



Source: Directorate for Metrology and Quality

Actual figures from the General Customs Department showed that, in first

quarter of 2009, the number of imported cars rose from 1,300 units to 7,790

units, worth $ 149 million.

According to official data of GSO, in December, 2009, there were 11,000

CBU cars imported into Vietnam, an increase of 4,000 units compared with

a forecast of 7,000 the agency launched in late December 2009. Therefore,

in 2009, there were 80,300 new cars and second hand cars imported. This

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