Despite initial signs of recovery, the Vietnamese auto industry is expecting a challenging 2014 as deadline pressures from ASEAN Free Trade Area (AFTA) commitments continue to mount.
Opportunities and challenges from AFTA commitments
ASEAN member auto imports will be awarded a preferential 50% import tariff from early 2014.The tax cut is the result of the earlier ASEAN Trade in Goods Agreement (ATIGA).
Import tax reductions are a boon for consumers but pose challenges to Vietnamese car assemblers and manufacturers.
Businesses cannot dally in adjusting to the ATIGA. Under the AFTA agreement, ASEAN auto imports will be exempted from import tariffs entirely from 2018. Experts know the pressure piles on Vietnam’s auto industry.
According to VAMA Chairman Jesus Metelo Arias, competition will only intensify as free trade area integration draws near.
To dodge around the commitment’s negative impacts from the commitment, Arias suggests Vietnam thoroughly prepare with uniform policies and stringent international treaty compliance. Stable policies incorporating long-term visions and specific roadmaps will allow businesses to plan properly for the market’s extra healthy competition.
Producing a car in Vietnam currently costs 20–25 percent more than in other regional markets. Arias believes reducing these costs and improving competitiveness demands demand stimulus, tax reductions, and minimal input costs. Investors should be encouraged to expand production, share their advanced technology and train Vietnamese human resources.
A developed auto industry is needed
The VAMA has been dwelling upon narrowing the cost gap separating imported and domestically assembled cars.
Mercedes-Benz Vietnam General Director & CEO Michael Behrens says the Vietnamese Government should work with manufacturers to develop support industries. Auto industries rely on highly trained professional workforces and capable engineers. The Government could step up its support for technical universities. The auto industry has generated 60,000 jobs.
After the failure of the 2010 auto industry development strategy, the Ministry of Trade embarked on drafting a new master plan for auto industry development through 2020 and towards 2030.
The draft awaits approval but has already attracted the attention of domestic car makers. Toyota Vietnam General Director Yoshihisa Maruta hopes the Vietnamese Government will finalise the master plan and proceed with its implementation as soon as possible.
“We hope the master plan will positively contribute to maintaining the long-term development of the Vietnamese auto industry,” he said.
BMW Euro Auto General Director Horst J Herdtle supports the Ministry of Industry and Trade’s (MoIT) Vietnamese auto market expansion plans. He thinks expansion secures the necessary manufacturers, importers, agents, service centres, and spare part providers.
Herdtle says the industry’s vigorous development can be harnessed to broader socio-economic development. He urges the Vietnamese Government to clarify its import tax and special consumption tax commitments. This would enable businesses to start on planning for expanding sales networks and services.
VAMA Chairman Arias says the draft master plan is an improvement over previous versions and includes VAMA input.
Arias is primarily concerned with honing competition by reducing production costs and refusing the crutch of protectionism. The Vietnamese Government and its relevant agencies should ease business and consumer tax burdens, gradually rescind tariffs, and build a system of suppliers that encourages investment and training.
Toyota Vietnam General Director Yoshihisa Maruta emphasises the importance of long-term planning, cultivating support industries, and eliminating unnecessary in the interests of maintaining a healthy investment environment.
Investing in transport infrastructure like roads, parking, and ports will also indirectly benefit socio-economic development.