The development of supporting industries is severely hampered by the fact that the domestic automobile sector itself has been badly conceived and executed, Pham Van Liem, deputy head of the Industry Policy Research Institute under the Ministry of Industry and Trade, tells Thanh Nien Weekly.
Thanh Nien Weekly: According to the automobile industry's development plan, its ratio of locally produced parts was to increase to 30-40 percent this year. However, it now stands at a measly 2-7 percent. Why has this happened?
Pham Van Liem: Vietnam's automobile industry is still at a fledgling stage compared to other countries, so most of the supporting industries for automobile production are underdeveloped. We have to import most of the components, or materials, from steel to plastic, to produce auto parts. Besides, the ratio of automobile users to the population is very low, as our policy has not encouraged the usage of these vehicles. We have imposed high import tariffs and value added tax on imported cars, making their prices double that in other countries.
And compared to the small market size and demand, the number of automobile assemblers and producers is very high. Thus, the market share of each firm is small, at several thousand units per year. At such volumes, it is almost impossible to increase the local content ratio.
In other countries, component manufacturers require an annual production of at least 500,000 products each year to ensure effective production at low costs.
So one of the reasons for the failure is that we have licensed too many automobile joint ventures?
Well, the plan was made after the firms were licensed. When we surveyed [the number of joint ventures needed to serve the industry development plan], there were only a few [joint ventures]. However, when the plan was approved, more firms were licensed. Thus, the plan had to be adjusted to match the number of automobile joint ventures that were licensed. In fact, there is a difference between what was initially planned and the actual number of licensed ventures.
So the plan does not keep pace with the market's development?
It takes years to make a plan, so there is the possibility that it will already be outdated when it is launched. It is also related to many sectors and ministries, thus the assessment needed to decide whether or not to abolish, continue or amend it often takes a very long time. Meanwhile, our knowledge and skills in formulating [industry development] plans are still limited. Not all plans are quite correct, and many forecasts made in the plans are not correct or in line with reality. So, it is necessary to improve in these areas.
Are there any other reasons for the excessive licensing of automobile joint ventures?
There are shortcomings when cities and provinces are allowed to license investment projects. In many cases, localities and management boards license projects without collecting opinions from relevant ministries and agencies. And when problems happen, they are not solved properly.
Some localities have licensed small-scale firms that cannot meet minimum technology requirements and turn out high-quality, competitive products. This is one of the obstacles to the development of Vietnam's automobile industry. Thus, the scale of our automobile industry is too small.
The situation shows that we have not been able to control some fields and ensure their effectiveness. It is only when the projects begin operating that we recognize their shortcomings. There are too many such projects, causing waste and improper competition, leading to ineffectiveness in business, and eventually, bankruptcy.
CAR SALES UP OVER 10 YEARS
Vietnam's auto sales have risen ten-fold over the past decade as the local market continues to expand, according to the Vietnam Automobile Manufacturers' Association (VAMA).
The association now has 18 members, compared to 11 when it was established ten years ago. VAMA said its members sold 99,798 vehicles, including cars, trucks and buses, in the first 11 months of this year, down 4 percent from the same period last year.
In November alone, it sold 11,198 vehicles, down 9 percent over the same period last year.