Vietnam’s automobile industry may miss its chances

The Ministry of Planning and Investment is building a recovery program post-pandemic. According to the Minister of Planning and Investment Nguyen Chi Dung, COVID-19 disrupted production activities of enterprises all over the world and severely affected Vietnam’s economy. In addition, the pandemic broke many supply chains both in the world and Vietnam. However, the demand is gradually rising again, since the economy is recovering after the pandemic. Vietnam needs to take a chance and have companies joining the global supply chain.

With the automobile industry, the Ministry of Planning and Investment stated that the trend of switching to electric vehicles and the shift in the global supply chain of multinational companies would create opportunities for Vietnamese businesses.

However, research results show that Vietnam's automobile industry has many limitations with inherent problems such as small scale production and little competitiveness in cost, domestic enterprises only participate in simple stages, low localization rate, etc. The ability to participate in the supply chain after the pandemic is a big challenge, an opportunity that can be missed.

Insufficient policies to boost the industry

The main reason why the auto industry in Vietnam cannot develop is the lack of adequate policy.

For years, the automobile industry has been identified as having a vital role in the economy as one of the driving forces promoting the industrialization and modernization of Vietnam. The automobile industry in Vietnam has always been a manufacturing industry affirmed by the Government as a priority for development. But so far, businesses are still waiting for preferential policies. The preferential policies that have been issued have not brought much effect or lack feasibility.

One of the important policies that are in consideration is the excise tax rate for cars. Currently, this tax is high, restricting people from using cars, making automobile production not develop. The proposal to adjust the excise tax that would help reduce the cost of domestically assembled cars, thereby reducing selling prices and increasing output, launched by the Ministry of Industry and Trade in 2017, had been supported and awaited by businesses, but so far has not materialized.

There are opinions that while Vietnam is open to imported cars, the support for domestic products is still not clear. According to the Ministry of Planning and Investment, the price of Vietnamese cars is twice as high compared to Thailand and Indonesia. This figure is even higher than that of developed countries such as the US, Japan, etc. The biggest reason for the high domestic car prices is the high taxes and fees, while the accumulated output is low. Car prices are too high while people's incomes are low, making cars a luxury item for over 95% of Vietnamese people. Therefore, Vietnam's automobile industry cannot develop, affecting the country's goal of becoming an industrialized and modernized country.

In addition, preferential policy packages for businesses investing in the production of auto components; Credit package to support customers to buy domestically assembled cars, etc., were also mentioned a lot but so far are still not implemented.

Businesses calculated that if they are entitled to the entire excise tax exemption for domestically produced components, the car price will decrease by 10-30%, depending on the localization rate of each model. In addition, if component manufacturing companies are granted preferential loans, infrastructure support, tax incentives, etc., production costs will reduce. Along with that, people will be supported with loan interest when buying domestically assembled cars, so more people will be able to access cars, helping to increase output and develop production.

According to the Ministry of Planning and Investment, recently, many foreign investors have expressed interest in the development of Vietnam's automobile industry and are waiting for signals from the management agencies. That is an opportunity to develop Vietnam's automobile industry on the threshold of our country entering the stage of automobilization. Enterprises expressed that it is necessary to issue preferential policies that are attractive and open to create a driving force for the automobile industry to develop, promote supporting industries, encourage new companies to invest in Vietnam, receive technology transfer from foreign firms.

Source: The Ministry of Industry and Trade