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3 OVERALL ASSESSMENT OF STATE’S REGULATIONS ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY

3 OVERALL ASSESSMENT OF STATE’S REGULATIONS ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE INDUSTRY

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With such achievements, we can say the achievements of the automotive

industry of Vietnam in recent years are too small compared with the

proposed strategies and actual needs.

3.3.2 Shortcomings

The government has launched various preferential policies and they have

been applied in recent years to help the automobile industry Vietnam

leapfrog to catch up with the world. But in reality, the people of Vietnam

have not been enjoyed anything from these policies and goal of leapfrog of

the automotive industry did not come true even though the time

implementing the strategy has lasted over 10 years.

Some shortcomings of the automobile industry in recent years are as

follows:

For price: there have not been low price vehicles to meet the needs of

people in Vietnam which have income much lower than average income of

people in the region. Current, in China, Korea, Thailand, the Philippines,

car price of a medium class is about 2000 to 20,000 dollars, whereas in

Vietnam, car price of a medium class is about U.S. $ 25,000-30,000.

After nearly 15 years of the automotive industry and more than 10 years of

integration, car prices tend to rise more and more. In some time, when

demand is higher than supply, shortage of goods occurred and the buyer

must bear a higher price and must wait for a long time to receive their cars.

For market: Target to meet the market demand is not met. Number of cars

per capita in Vietnam is only at 8 vehicles/1,000 people. This level,

compared with China (24 vehicles/1,000 people), Thailand (152

vehicles/1,000 people), Korea (228 vehicles/1,000 people), is too low.

For export: Currently, there is no car manufactured by a joint venture

enterprise in Vietnam or by domestic automobile company exported to

foreign markets. In the near future, export is still not very good because

EURO II emission standard has not yet been applied for cars manufactured

in Vietnam, whereas, in advanced countries, this standard was not applied

any longer.

Localization rate:

To develop supporting industries, localization rate was given in each

timeline and each type of cars in detailed but not achieved. Currently, the

localization rate in automobile enterprises is only at 20%. Actually, raising

the localization rate of 50-80% as oriented by the government is very

difficult because even in their main factories they only produce about 45%

of total number of details.

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3.3.3 Reasons for shortcomings

Internal factors

For management tool: Underdevelopment status of Vietnam’s automobile

industry is resulted from many different causes. One of major causes for

that is Vietnam government has not had an effective regulatory tool. The

government has 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.

Role of management: Apparently, the managers are only interested in sales

achieved without paying attention to the source of the problem. The

automobile industry got 80,000 units in late 2007, import turnover of spare

parts reached $ 700 million. According to the Ministry of Industry and

Trade, they are just flashy numbers.

For automobile manufacture technology: Joint venture and domestic

enterprises have not really focused on automotive technology, they still

insist on profit. Automobile industry of our country just specializes in

assembling and processing. For instance, in Toyota joint venture, the

manufacturer with the highest localization rate, car bodies are stamped in

Vietnam, whereas other companies just complete electrostatic coating step.

With low localization rate and with purpose for quick profit, the profits

actually reach only 3% to 5%.

External factors

In fact, manufacturers of cars in the world still do not consider Vietnam as

a potential market for automobiles. Therefore, they do not strongly invest

in technology and do not assemble top brand vehicles in Vietnam. The main

reason is people's low income with average income per capita lower than $

1,000/person/year. In addition, the proportion of car use is very low. For

instance, in Ho Chi Minh City, where number of people using cars is

highest, the proportion of car use is only 47 vehicles/1,000 people.

Automobile industry requires big investment and long recovery of capital.

According to statistics, a car composes of 20,000-30,000 details with high

technology, big R & D cost and huge capital investment. Besides, the life

cycle of each brand is only in the range of 5-7 years. Therefore, many big

car makers in the world do not want to invest large amount of capital and

technology into Vietnam's market.

Import tax of neighboring countries of Vietnam is very low, creating a

significant competition for cars made in Vietnam. Import tax of cars is only

under 20% in Cambodia and 42% in Laos.

General comments:



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Scale of Vietnam’s automobile industry now is not commensurate with

development potential. Vietnamese people have to buy a car with a high

price and localization rate is low due to underdevelopment status of

supporting industries. The reason for all above issues is poor management

capacity. Currently, the only management tool is tax; the only efficiency

evaluation method is through turnover.



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Chapter 4:

RECOMMENDATIONS FOR IMPROVING STATE’S

REGULATION

ON THE DEVELOPMENT OF VIETNAM’S AUTOMOBILE

INDUSTRY FOR THE PERIOD 2011 – 2020



4.1



FORECASTING THE TREND OF DEVELOPMENT OF

VIETNAM’S AUTOMOBILE INDUSTRY IN THE PERIOD

2011-2020



4.1.1



Three main trend for global:



In general, development of global automobile industry has 03 main trends:

1. Development of automobile industry relies on internal force (i.e., its own

technology). These nations have their own brand name cars, including nations

with high technology level such as Germany, USA, Japan and Italy and later on,

Korea, French, Sweden.

2. Development of automobile industry by establishing joint venture companies

with foreign big car makers from developed countries, then turning them into

100% domestic-owned enterprises by buying them. China is an example.

Currently, SATC Motor bought Rover 750 and 250 from MG Rover in 2005,

Geely Auto and Chongqing Changan Auto are interested in Volvo…

3. Development of automobile industry by developing supporting industries

through establishing joint venture companies. Countries representing this trend

are Thailand and Taiwan (nations with medium technology level). Thailand has

about 700 automobile component manufacturers and 1000 supporting

manufacturers. Taiwan also has more than 2000 spare part manufacturers.



Based on above analysis, some comments are made as follows:

- Vietnam’s technology level is still low. Therefore, it is impossible for

Vietnam to build its automobile industry by itself.

- Domestic companies major in automobile assembly only.

- Vietnam can do the same way China did with support from the

government. However, there has not been any policy for this till now.

So, it can be said that buying brand names and manufacturing

technology from some big car makers is impossible at this time and

in near future.

- Development of supporting industries is not as good as expected.

With protection policy, the government expected joint venture

enterprises to create more jobs, increase localization rate and lower

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the prices. In fact, joint venture companies did not keep their

commitment to get localization rate of 30-40% in 10 years.

Currently, localization rate in products manufactured by joint venture

companies gets only 2-12%. Supporting industries in Vietnam

provide just simple and low valuable products for car manufacturing

process such as tire, tube, battery, electric wire, car chair, etc.

In general, there is no clear orientation from the government for the

development of Vietnam’s automobile industry.



4.1.2 Development orientation by Government in other country for

development of automobile industry.

To forecast the trend of development of Vietnam’s automobile industry for

the period of 2011-2020, taking a look at neighboring countries and at

Vietnam itself will be essential:

Malaysia:

From 1985, Malaysia government promulgated a policy to protect home

manufactured cars with an ambition to take control of the automobile

industry.

However, domestic cars in Malaysia can only be consumed in domestic

market with a falling market share. Future of Malaysia’s car makers are

foreseen to be bankrupted or merged with a big car maker. Effectiveness of

the protection policy can be seen clearly.

Recently, Malaysian government decided to remove protection policy,

creating a market with higher competition. Inhabitants benefit from this

change.

Thailand:

Thailand is now considered as “Detroit of Asia”, as a center providing cars

and accessories to many big car makers all over the world.

Thailand did not do the same way as Malaysia or Vietnam did. Until now,

Thailand has not have its own brand name cars but it has established 700

car component manufacturers and 1000 auxiliary manufacturers.

It can be said that Thailand is in the right direction in developing

automobile industry by participating in global production chain, attaching

special importance to a specific product, not developing domesticmanufactured cars at all costs.

China:



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