Vietnam’s Auto Industry in Doubt; Braces for Imports

Not for the first time in recent years, the Japan External Trade Organization (Jetro) is warning that some of its members in Vietnam are considering leaving the country for good, due to low local demand, poor development of support industries and a row over tax invoicing. Currently, demand for new cars in Vietnam is stagnant at around the 250,000 units per year mark, much lower than the 2 million per year racked up by close neighbour, Thailand. On average, a production line needs to run at about a 200,000 units per year rate to be profitable, but with the likes of Toyota, Mazda, Honda and Suzuki from Japan all trying to manufacture in the country, along with other notables like Hyundai and Peugeot, the chances of turning a profit are low.

Toyota is known to be viewing the ASEAN zero-percent tax for cars made within the ASEAN block as a chance to maximise its facilities in Thailand and Indonesia, and move to imported-only models in the near future. Long term, this could be a boon for motorists who find that there is an ever limited choice of low-cost locally assembled cars, as manufacturers concentrate on just a few models with which they can turn at least a small profit, and switching to a CBU business model would allow for a greater variety of cars to be imported.

The Vietnamese government is trying to respond to the automakers’ demands for more help to maintain manufacturing in Vietnam. The Ministry of Trade and Industry announced three measures to stimulate the industry as a result of the announcement from Jetro. Firstly, it is to focus on the creation of technical barriers to stop fraud in the certificate of origin, and thus ensure that the correct taxes are paid. Secondly, it will adjust the import tax on components and parts and lastly, it will create an industry development programme for manufacturers of local parts. All of this could be too little too late as ASEAN rushes to become a single economy, much along the lines of the European Union, and the Vietnamese car industry may become a casualty in the mad rush of progress.

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