Development of supporting industries for the automotive sector: There are still many barriers

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Photo: Hoang Linh

Many limitation and difficulties

According to Luong Duc Toan, deputy head of the processing industry manufacture, the Department of Industry (Ministry of Industry and Trade), the automobile manufacturing and assembling industry in Vietnam has only produced a number of components. Parts such as the components of the car chassis, car body, cabin cover, car door, tires, radiators, gearboxes ...; chairs, side glass and tweezers for commercial cars, front and rear bumpers, some interior details, batteries, tires and air purifiers ... According to Shinjiro Kajikawa, deputy director of Toyota Vietnam, the concern of automobile manufacturers is low quality and poor delivery management. Production costs, high depreciation costs are a "systematic problem" that is difficult to overcome.A report of the Ministry of Industry and Trade shows that there are 358 manufacturing enterprises involved in automobiles, of which 50 are assemblers of automobiles, 45 are for chassis, body and 214 units of car parts. This figure is too low compared to 385 in Malaysia and 2,500 in Thailand for the manufacture of auto parts.

Challenges in cutting costs of domestic production in Vietnam, according to Toyota representatives, still come from the market size. Accordingly, the development of the automobile industry cannot be achieved if it is short of the market growth of the domestic automobile assembly and supporting industry. Examples of plastic components such as the front bumper, the rear bumper and the dashboard are the components that require major investment (about $ 12 million for equipment investments such as plastic extruders, lifting cranes and tools. Toyota's representatives calculated the levels for localization of these components to ensure a return on investment within five years of the vehicle's life cycle.

"At the current production level of 20 thousand components, only cost reduction $ 5 / component, it means not to completely recover the investment capital in 5 years. If the production reaches 40 thousand components per year, the cost is reduced to $ 48 / component, equivalent to $ 1.9 million / year, after five years reduce $ 10 million. As such, it is still not possible to recover enough capital; it means that parts will still be cheaper. However, once the production reaches 60,000 pieces a year, we can recover the investment in four years," he calculated.

From the perspective of implementing the policy, representatives of Huyndai Thanh Cong said that the biggest obstacle of enterprises nowadays is implementation of direct support policy for supporting industry. The Government has supported policies for supporting industry in general, but specific policies to develop supporting industry for automobiles are not much, especially there have not been many tax support policies to promote companies in the supporting industry to privately develop large scale. Therefore, it is necessary to further promote the Government's support policy so that supporting industry companies will be motivated to develop.

Mr. Luong Duc Toan also said that support policies are provided for in Decree 116/2018 / ND-CP on development of supporting industry and Decision 68/2017 / QD-TTg on approval of the program. However, due to short implementation time, the efficiency is not clear.

Solve problem about the policy enforcement

Concerning the supporting industry issue of the automobile industry, the report on the implementation of the National Assembly's resolutions on specialized supervision, including the results of development of the automobile industry, at the 10th session of the XIV National Assembly, Standing Deputy Prime Minister Truong Hoa Binh said that the automobile industry has developed rapidly in the last two years. However, according to the representative of the Government, weak capacity of enterprises in the supporting industry is also worth attention. Accordingly, mold makers do not have either a large scale or lack coordination for development. The production of embryos and molds for the industry is not high and the rate of defects is high, not meeting the requirements of the industry. According to this report, at present, the localization rate of countries in the middle region has reached 65 - 70%, Thailand reached 80%. Thus, if domestic car manufacturers do not soon have effective solutions to improve the localization rate, it will be difficult to compete with the regional market when AFTA is effective. According to the Ministry of Industry and Trade, in terms of localization rate, 7-ton trucks meet about 70% of demand, with an average localization rate of 55%. Passenger cars of 10 seats or more, some specialized vehicles meet about 90% of the demand, with the localization rate of 45% to 55%. The localization rate for private cars to 9 seats is low, reaching only 7-10% on average, of which Thaco is 15-18%, Toyota Vietnam is 37% for Innova, lower than the target.

Mr. Shinjiro Kajikawa emphasizes that the small scale of Vietnam's production is the main reason for the difficulty of cutting costs of domestic production in Vietnam. The difficulty in investment in component manufacturing is the result of unstable markets and low production, localization and suppliers in Vietnam is limited compared to other countries. Therefore, the cost of production vehicles in Vietnam is higher than the imported vehicles from ASEAN countries by about 10-20%. In favor of supporting industry, according to Shinjiro Kajikawa, domestic components need more competition than imported components for quality, cost and delivery. Secondly, output plays an important role, yet Vietnam is facing "negative output" compared to other countries. "Disadvantage is a systematic problem, so businesses will have difficulty settling. In this situation, in order to expand our localization, we expect the Government to consider effective policies to reduce investment costs, such as support for investment in molds and fixtures.“ said Shinjiro Kajikawa.

Despite the attention of the Government, domestic automotive industry has not developed yet. Facing the opportunities and challenges of integration, in order to be able to compete with other countries in the region, Vietnam should continue to have solutions to promote the automobile industry. According to Nguyen Thi Tue Anh, Vice President of CIEM, we are introducing policy packages, but the most important we have to consider is how policy affects enterprises; from that practicality it is necessary to clarify the next step. If the policy is available, but no breakthrough is successful, management agencies need to share and discuss with each other to have more specific solutions in supporting automobile industry.

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Luong Duc Toan said that it is necessary to improve the capacity of automobile industry to meet the requirements of global production chains, to promote the linkage between companies of supporting industry and complete production enterprises. Domestic and foreign markets, especially some countries such as Japan, South Korea, ... "Need to support enterprises to improve production technology and production management, technology transfer, development of science and technology and development of supporting industry human resources. At the same time, it is necessary to formulate a preferential credit package along with the same mechanism as the high-tech agricultural credit development package - to develop priority industries in line with the strategic orientation of the Party and Government, including credit priority for supporting industry development," said Luong Duc Toan.