VietNamNet Bridge – Vindaco’s decision to shut down shows that the policy on protecting local automobile production which Vietnam has been pursuing is not the right solution to develop Vietnam’s automobile industry.
Experts said that many other automobile assembling companies might follow Vindaco’s move to leave Vietnam once the country completed cutting taxes under its WTO commitments.
One laughs and another cries
On the morning of June 16, the ceremony to commemorate the 10th anniversary of establishment of Truong Hai Automobile Company took place jubilantly at Thong Nhat Palace in HCM City. Meanwhile, at Vindaco, the colleague and rival of Truong Hai, a somber atmosphere pervaded its offices and workshop.
Several staffs of Vindaco were seen doing the last things they had to do, including sending letters to clients, informing them about the dissolution and the agents the clients should contact for maintenance after the joint venture stopped operating.
Kimikazy Mitsuhashi, Director General of Vindaco, told the press that the joint venture dissolved because of a too small market with too many rivals.
In 1994, Daihatsu and foreign partners, though they knew well the scale of the automobile market, still decided to inject $32mil in setting up a factory to assemble cars and small vans, hoping that the market would boom in the future, and Vindaco would dominate the market for less-than-10-tonne vans.
However, they miscalculated both the market’s development and the taste of Vietnamese people. Daihatsu, the biggest partner in Vindaco, could not imagine that its rival in the van segment would not be the world-famous group, but local enterprises.
In 2006, the sales of locally assembled vehicles bounced back after two years of falling down, with 41,000 sold units. However, the purchasing power of mini cars and vans of less than 1 tonne did not recover, but even decreased sharply, from 8,000 units in 2005, to 3,000 units in 2006.
In the first five months of the year, Vindaco sold 173 units of different types, while Truong Hai, its main rival, sold 3,505 units, and Vinaxuki, another van manufacturer, 2,014 units. That was the main reason that led to Vindaco’s decision to dissolve.
With the current market growth rate, sales may reach 60,000 units by the end of this year, well exceeding the record sale level of 42,557 in 2003. However, Vietnam’s automobile market has not seen the previously expected growth rate. In 1994-1995, foreign groups predicted that Vietnam would see 105,000 units sold in 2005.
Wrong way has been chosen
Unsuitable policies have been pointed out as the factor that has been hindering automobile industry development. At first, Vietnam decided to follow a policy on protecting local production – Malaysia’s model. While Vietnam tries to protect assembly joint ventures, Vietnamese consumers have to buy cars at prices which are two or three fold higher than the world’s levels. With the wrong policies, policy makers have stifled the domestic market.
In fact, the policies Vietnam has been following prove to be not synchronous. On one hand, Vietnam considers the automobile industry a very important and high-priority industry. On the other hand, the Government wants to narrow the domestic market for fear that the current road system would be overloaded with too many cars. That explains why it has been trying to impose high tax rates (luxury tax and import tax) on automobile products.
The biggest mistake the policy makers have made was in deciding the way to follow. Vietnam wanted to produce all car parts itself, and its tax policies all aimed to encourage localisation.
The way Vietnam followed was the way Malaysia once went, and the plan to localise car production has failed completely. With such a small market like Vietnam, where not many units can be sold every year, no investor dares to spend much money just to sell several thousand sets of car parts every year.
A representative from Daewoo Motor once suggested the idea of making national cars: i.e. all companies make the same model. However, the idea was brought to an early grave.
Meanwhile, a neighbouring country, Thailand, has chosen another way for its automobile industry. Instead of trying to produce all car parts, the country encourages its enterprises to get involved in the global value chain, under which, Thai automobile companies act as both providers and consumers of car parts for and from other foreign companies.
The way proves to be suitable for a small market, possibly including Vietnam. Last year, the car output in Thailand was more than 1mil units.
In fact, Toyota Vietnam and some other companies asked the Government to apply the Thai model. The manufacturers tried to persuade it that the policy would help develop the supporting industries. However, the proposals were not accepted.
Even nowadays, the viewpoint on local automobile industry development has not changed. In the master plan on automobile industry development by 2010, the localisation ratio is still listed among the priority goals.
The Ministry of Industry has forecast that by 2010, the consumption level will reach 138,000 units a year, and the localisation ratio will be 60%. However, experts have pointed out that the goals will be hard to reach if the policies aiming to limit demand still exist.
(Source: TBKTSG) |
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