Viet Nam's automotive industry could face major collapse under commitments to the ASEAN Free Trade Area (AFTA) which will abolish auto import taxes in 2018.
Mazda cars manufactured by Vina Mazda, a subsidiary of Mazda, at the Quang Nam-based Chu Lai – Truong Hai Complex roll off the production line.
ASEAN + will waive taxes on car imports between ASEAN member countries, as well as Japan, South Korea and China, who are party to the agreement.
The tax cut poses a disastrous threat to Viet Nam's fledgling auto industry, unable to compete with the price and quality of imports.
"If we do not make immediate measures, Viet Nam would become a big auto importer in the region" said Ngo Van Tru, Deputy Head of the Heavy Industry Department of the Ministry of Industry and Trade.
The last chance
It has been 20 years since foreign car makers first built factories in Viet Nam. In spite of a long history of Government investment, Viet Nam's auto industry faces significant hurdles.
Under the new agreement, the country has only five years to develop its auto industry to compete with an impending influx of imports after 2018.
"The situation shows that it would be a chance to develop the local auto industry, but if we miss this chance, Viet Nam will be the auto import market," a representative from the Ministry of Industry and Trade said in a recent conference.
There are currently 18 auto makers that belong to the Viet Nam Automobile Manufacturers Association (VAMA). Approximately 30 others have a combined investment of over US$1 billion and an output over 200,000 cars per year.
According to the Industry and Trade Ministry's report, the local auto industry is behind on most of its targets.
While the target for local diesel production was set to reach 100,000 units by 2010, Truong Hai is the only company to invest in a diesel factory which will begin production in 2014.
As many as 100,000 gearboxes and 100,000 transmission systems were forecast for production in 2010. No investment has been made.
Meanwhile, Viet Nam plays host to only 210 auto parts manufacturers, one fifth of Indonesia's production base and one fifteenth of Thailand's.
Adding insult to injury, most of these companies produce simple and low technology products with low local contents.
According to the General Director of Toyota Viet Nam, Yoshihisa Maruta, a long term development plan, stable policies and greater incentives for auto makers would provide a necessary boost to Viet Nam's auto industry.
The GM Viet Nam General Director, Guarav Gupta, called on the Government to develop a detailed plan to support the local auto industry and boost investor confidence.
Detailed plan needed
The Ministry of Industry and Trade has revised the auto industry master plan in a bid to save the auto industry.
The Viet Nam Automobile Development Plan, which looks as far as 2020, classifies market opportunities to help producers meet the demands of market segments. The plan aligns with current development plans to revolutionise the manufacturing sector, according to Tran Tuan Anh, Deputy Minister of Industry and Trade.
Anh said the Ministry has added three "breaking" solutions to the revised plan, including stable policies for the auto industry, producing environmentally-friendly vehicles and creating favourable conditions for car makers.
According to the Viet Nam Automobile Manufacturers Association (VAMA), domestic auto sales exceeded 49,800 units in the first half of this year, up 16 per cent on 2012 figures.
Car and truck sales grew 22 per cent and 13 per cent respectively, from 2012.
VAMA forecasts indicate sales will reach 112,000 units after a proposed 10-12 per cent cut in auto registration fees.