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Car industry in need of overhaul

Update: August, 28/2014 - 08:45

Mechanical engineering is the key to the growth of Viet Nam's underdeveloped car industry, which is plagued by too many small operators, limited production of sophisticated components and a low localisation rate.

The Government's plan to develop the industry by 2020 is considered the right momentum to encourage companies to invest in making components and parts for the industry.

Vietnam News Agency has a talk with Do Huu Hao, chairman of the Viet Nam Mechanics Association, around this issue.

How do you assess the development of mechanical engineering in Viet Nam?

Do Huu Hao

Mechanical engineering is considered infrastructure and the foundation of industrial sectors, including the auto industry. The master plan on the industry development approved by the Prime Minister aims to raise vehicle production to more than 227,000 vehicles by 2020. This will provide many opportunities for domestic mechanical engineering.

However, the present number of companies involved in manufacturing spare parts account for just 5-6 per cent of total mechanical enterprises. Many produce unimportant parts such as batteries, tyres and electric wiring. However, they cannot manufacture parts with high accuracy and technology.

In addition, the difficulties in expanding the consumption market and attracting investment make the localisation rate for auto production and assembly a low 5-10 per cent.

Why is there such a low level of localisation?

In my opinion, the most profound reason is the market. Our transport infrastructure has been underdeveloped for a long time and is congested. This has limited the number of motorbikes and cars.

This impediment slowed down the development of Viet Nam's automobile market for the last 10 years. There are still only about 100,000 vehicles produced each year.

Another reason for low production is the tax policy. Motorists must pay up to nine different taxes which push up car prices up to three times higher than in many other countries. It's clear that raising taxes and fees reduce market size.

With consumption of about 120,000 vehicles a year, each company, such as Toyota, Ford, Truong Hai and Mercedes, can assemble and sell only a few thousand vehicles. This is not enough to expand the mechanical engineering industry.

How does Viet Nam's auto industry compare with other regional countries?

Our mechanical engineering industry is still weak in comparison with other countries. At present, domestic manufacturers supply only 10 per cent of spare parts for cars while this rate in Thailand is 40-50 per cent, in China 60 per cent - and in Malaysia about 90 per cent.

Viet Nam does not have an automobile manufacturing industry. It only assembles car or makes spare parts, which have low value.

The domestic mechanical profession is still weak in metallurgy and design and we must help businesses research and produce better products.

What about the opportunities provided by the development policy and incentives for mechanical companies for industry development?

Opportunities seem large, but actual implementation is difficult. If we don't focus on researching products where we have an advantage, the target to lift the rate of mechanical support for car building to 40-50 per cent will be unachievable.

How can businesses make good use of this opportunity?

We should encourage small and medium companies to produce competitive products such as tyres. We should also try to build mechanical factories in areas such as Chu Lai, Vinh Phuc and Bac Ninh where there are big car companies such as Honda, Toyota and Ford.

The first step should be to enable the domestic market to raise the localisation rate, and then gradually participate in the global supply chain. In addition, we should plan for the development of the auto market. When the market size is large enough, businesses will be willing to make investment.

In the future, I think we could focus study on manufacturing electric cars as this is a new field. If we can make focus on specific key products, there will be opportunities for suppliers to sell domestically or to export. — VNS

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