NATIONAL ECONOMICS UNIVERSITY

SCHOOL OF TRADE AND INTERNATIONAL ECONOMIC

--------

TOPIC 3:

Analyze the competitiveness of Vietnam’s automobile

industry in ASEAN and make appropriate policy
recommendations to protect this industry in the context of
AFTA implementation
Instructor:  Dr. Ngo Thi Tuyet Mai
Group 3 :

Phạm Khánh Huyền 11182338

Mai Phương Thảo 11186028
Lê Hạnh Quỳnh 11184235
Võ Minh Quân 11184157
Lê Thanh Phương 11184000
Class : International Economics 60B

Hanoi - 2021
Contents
1. Vietnam's automobile industry in ASEAN......................................................................................3
1.1. VN`s automobile industry.........................................................................................................3
1.1.1. Overview of VN`s automobile industry...........................................................................3
1.1.2. Some leading manufactures..............................................................................................4
1.1.3. Recent achievements..........................................................................................................5
1.2. Viet Nam in ASEAN’s automobile industry............................................................................7
1.2.1. Overview of ASEAN’s automobile industry....................................................................7
1.2.2. Vietnam in Asean’s automobile industry (compared to ASEAN).....................................11
2. Impact of EVFTA on Vietnam's auto industry...................................................................................12
3. Strengths and weaknesses of Vietnam's auto industry.................................................................14
3.1. Weakness..................................................................................................................................14
3.2. Strengths...................................................................................................................................15
4. Causes of strengths and weaknesses...............................................................................................15
4.1. Policies......................................................................................................................................15
4.2. Automobile assembly business................................................................................................15
4.3. Domestic and foreign investment capital...............................................................................16
5. Solutions and policies......................................................................................................................16
5.1. In the long term........................................................................................................................16
5.2. In the short-term,.....................................................................................................................19
5.3. For supporting industries........................................................................................................20

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1. Vietnam's automobile industry in ASEAN
1.1. VN`s automobile industry
1.1.1. Overview of VN`s automobile industry
The automobile industry is an important economic sector in the process of industrialization and
modernization in many countries.

For Vietnam, over the years, the automobile industry has always been considered as a priority
industry for development and has made meaningful contributions to the country's socio-
economic development; has created jobs for hundreds of thousands of employees at enterprises,
creating a great source of revenue for the state budget.

Vietnam's automobile industry began to be formed and focused on development more than 20
years ago, about 30 years later than other countries in the region. Thailand, Indonesia, Malaysia
developed the automobile industry in the 1960s while in Vietnam until 1991, the Vietnamese
auto industry was born.
Therefore, when Vietnam just laid the first bricks to build the industry, the auto industry in other
countries was very developed, creating great competitive pressure, threatening the domestic
production.

Countries such as Thailand, Indonesia or China, with the advantage of being the forerunners,
technology and labor are developed at a higher level, taking advantage of economies of scale that
make production costs lower

Vietnam’s automobile industry has grown significantly in recent years. The average growth rate
of domestically assembled vehicles was approximately 10 percent per year in the 2015-2018
period. With major manufacturers such as Toyota, Honda, Ford, Nissan, and Kia in the
Vietnamese market, the number of spare parts suppliers have also invested in the industry giving
the sector a much-needed boost.

The motorbike is ubiquitous to Vietnam, but with the country’s fast-growing middle class, car
ownership is steadily rising. This growth, however, is likely to be stunted in the short term due to
the COVID-19 pandemic but expected to resume in the long run as Vietnam reopens its
economy.

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However, the Vietnamese automotive industry faces stiff competition. Part of the reason for this
is the zero-tariff policy between ASEAN countries that Vietnam is part of. Thus imports are
cheaper than domestically produced vehicles.

Although Vietnam is one of the four largest automobile manufacturers in Southeast Asia, it has
one of the lowest average localization rate in this region (only around 10-15 percent, and is still
far behind Thailand, Indonesia and Malaysia). 

In addition, the local automobile industry has not been able to invest in core and high technology
products such as engine production and transmission systems. Localized parts are mostly of low
technology products such as tires, seats, mirrors, glasses, cable harnesses, batteries, and plastic
products.

About 80-90 percent of the main raw materials used to manufacture components are still
imported. As a result, companies are required to import approximately US$2 billion to US$3.5
billion in components and parts for vehicle manufacturing, assembly, and repair each year. 

For this reason, domestic automobile production costs are 10-20 percent higher than in other
countries in Southeast Asia. As a result, the cost of cars produced domestically are at a
disadvantage compared to completely build units (CBUs) that are imported.

1.1.2. Some leading manufactures

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Domestic automotive production faces many disadvantages such as a low localisation rate, which
makes the prices of domestically manufactured and assembled cars higher than imported ones.
Vietnam’s automobile production and assembly have the lowest localisation rate – specifically,
trucks under seven tonnes have an average rate of over 20 per cent; passenger cars with 10 seats
or more is 45-55 per cent; and personal cars of nine seats is 7-10 per cent (except for Toyota’s
Innova car which reached 37 per cent). Vietnam’s localisation rate is the lowest compared to
ASEAN countries such as Thailand, Indonesia, and Malaysia.

According to the Ministry of Industry and Trade, Vietnam boasts over 50 automotive plants with
18 foreign-invested enterprises and 38 domestic companies. The three major auto manufacturers
of Truong Hai Auto Corporation (THACO), Toyota, and Mitsubishi Vietnam account for more
than 70 per cent of the market share. THACO ranks first with 35.5 per cent market share,
followed by Toyota on 24.9 per cent, and Mitsubishi at 10.2 per cent. Among largest car
companies in Vietnam, there are only two with 100% domestic capital: Thaco and Vinfast. In
particular, Vinfast is the first Vietnamese automobile manufacturing company.

1.1.3. Recent achievements

Vietnam's auto industry has developed quite rapidly in the past 3 years.
According to data from the Vietnam Register, the output of domestically manufactured and
assembled cars from 2018 to now is as follows: In 2018, the number of locally manufactured and
assembled vehicles reached 287,586 vehicles; In 2019, the number of locally produced and
assembled vehicles is 339,151 and In 2020, the number of domestically assembled cars is
323,892. (Note: the data includes both vehicles manufactured and assembled from spare parts
and vehicles manufactured and assembled from certified base cars or other new vehicles).
Domestic manufacturing and assembly enterprises have initially affirmed their role and position
in the domestic automobile market and have made strong progress in both quantity and quality.

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 By the end of 2020, Vietnam's automobile industry has about 40 enterprises engaged in the
production and assembly of automobiles, including passenger cars, trucks, passenger cars,
special-use cars and close-up cars. xi. Some domestic enterprises have actively participated in
the global automobile production chain. Total design assembly capacity is about 755 thousand
vehicles/year, of which foreign-invested sector accounts for about 35%, domestic enterprises
accounts for about 65%.
Total designed assembly capacity for vehicles with less than 9 seats to meet domestic demand. In
the past 3 years, the production and assembly output of cars with less than 9 seats has actually
met about 70% of domestic demand.
Light trucks under 7 tons, passenger cars with 25 seats or more, and specialized vehicles
produced domestically have achieved high localization rates (about 50% for light trucks and over
60% for vehicles). customers), achieve the set goals, basically meet the needs of the domestic
market. In particular, a number of products (passenger cars, passenger cars manufactured and
assembled by Thaco) have been exported to Thailand and the Philippines.

Table 1: Number of cars manufactured, assembled, imported and sales of some major auto
brands from 2018 - 2020

2018 2019 2020

No Man
Brand Cons Cons
. ufact Impo Manufa Impor Consumpti
Manufacturing Import umpt ump
urin rt cturing t on
ion tion
g
63,52 77,55 79,56
1 Hyundai 61,447 - - 79,113 - 81,368
6 6 8
65,85 50,11 27,95 79,32
2 Toyota 55,662 19,034 43,397 23,805 79,692
6 8 1 8
29,44 29,82 29,05
3 Kia 29,392 - - 28,824 - 35,171
7 9 5
32,73 24,35 30,02
4 Mazda 31,933 3,626 4,465 21,827 3,102 27,645
8 8 9
15,52 15,30
5 Vinfast - - - - 20,613 - 29,485
9 0
24,56 10,53
22,99 32,20
6 Ford 13,258 11,828 3,282 17,173 24,357
6 6 0 0
27,09 25,05 33,10
7 Honda 10,723 18,677 9,965 14,015 7,946 24,418
9 6 2
Mitsubis 10,27 29,29 30,64
8 3,531 7,172 4,081 4,857 23,008 28,954
hi 8 3 2
Source: General Statistics Office

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Domestic vehicle manufacturing and assembly enterprises have contributed billions of dollars to
the state budget per year and created jobs for hundreds of thousands of direct workers. over the
past time, the quality of domestically produced and assembled cars and imported cars has been
strictly controlled, ensuring the interests of consumers.

1.2. Viet Nam in ASEAN’s automobile industry

1.2.1. Overview of ASEAN’s automobile industry

Automobile manufacturing and production have skyrocketed in recent years, most notably

in Thailand, Indonesia, Vietnam, and Malaysia. Although these ASEAN nations have all focused
on automotive industry development, the particular economic niches and consumer bases differ
greatly between them.

Foreign investors looking to invest in this industry require strong market understanding and a
long-term view with regards to the resources needed to penetrate the competitive ASEAN
automobile market.

Southeast Asia is anticipated to account for a significant portion of this figure, with the
Philippines, Thailand, and Vietnam emerging as key markets.
According to recent data from the ASEAN Automotive Federation, Thailand’s new vehicle
market strengthened considerably in 2020, with sales rising to

7
production and Sales of Motor Vehicles in ASEAN, Oct 2020

ASEAN Automotive Federation published statistics of Motor Vehicles’s Production and Sales of
8 ASEAN Countries, collected during January – October 2020:

Brunei
     - Production: n/a
     - Sales: 11,220 units
Indonesia
     - Production: 549,577 units
     - Sales: 421,069 units
Malaysia
     - Production: 374,494 units
     - Sales: 398,159 units
Myanmar
     - Production: 11,927 units
     - Sales: 15,145 units
Philippines
     - Production: 54,894 units
     - Sales: 173,035 units
Singapore
     - Production: n/a
     - Sales: 45,506 units
Thailand
     - Production: 1,112,426 units

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     - Sales: 608,880 units
Viet Nam
     - Production: 120,556 units
     - Sales: 212,409 units

Thailand

Known as the ‘Detroit of Asia’, Thailand has long been recognized as the primary manufacturer
of automobiles among ASEAN countries and has gained attraction in the automobile export
industry.

The country produced 2 million units in 2018 and exports more than half of its output to more
than 100 countries, according to automotive industry portal Marklines. They report that the
industry has seen an 8.7 percent year-on-year growth in 2018 and just over 1 million units were
sold domestically.

Further, to maintain its competitive-edge amongst ASEAN’s automobile industry in addition to

catering to more environmentally conscious consumers, Thailand’s Board of Investment
(BOI) initiated the eco-car scheme in 2007 – the first in Southeast Asia.

The scheme provides a multitude of opportunities for foreign investors in Thailand’s automobile
manufacturing industry. The BOI ensures an eight-year corporate income tax exemption for
automobile companies investing US$168 million or more into environmentally conscious
vehicles. Major Japanese OEM make up most eco-cars sold and the BOI has called for the
production of 500,000 units within the next five years.

Investors could also take advantage of Thailand’s new stimulus package called Thailand
Plus upon entering the automobile industry. Thailand Plus offers 200 percent tax deductions for
investors engaged in developing advanced technology as well as those engaging in automation
systems and robotics – important incentives designed to advance the automotive manufacturing
sector.

Indonesia

While Thailand looks outward toward automobile exports, Indonesia benefits from a huge
domestic automobile market driven by an emerging middle-class.

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The automobile consumer base is expected to grow rapidly, with most purchases occurring in
Indonesia’s cities, mainly in Jakarta. Car sales grew by six percent by the end of 2018 – at just
over 1.3 million units, with 346,000 exported to markets such as the Philippines, Saudi Arabia,
and Vietnam. The government has an ambitious target to export 400,000 units in 2019.

Indonesia’s Low Cost Green Car (LCGC) has found economic success in the domestic market.
LCGCs are relatively affordable for its consumer base, priced at US$8,265 (IDR 100 million).
LCGC production is regulated by the government, which plans to reduce carbon emission due to
transportation by 26 percent within the next five years. LCGCs have a required fuel consumption
minimum of 20 kilometers per liter and 85 percent of LCGC parts must be domestically
manufactured.

The government has also issued various tax incentives to support this initiative. These include
the deductible tax incentives of up to 300 percent for carrying out research and development and
200 percent for engaging in vocational activities

Malaysia

Malaysia is an important contributor to automobile manufacturing in ASEAN. In 2018,

Malaysian automobile manufacturers produced a total of 572,000 vehicles, with 522,000 of them
being passenger cars. But Malaysia’s automotive manufacturing landscape is sharply divided
between domestically produced vehicles and its foreign competitors.

Automobile producers Proton and Perodua  dominate Malaysia’s domestic companies, with

64,700 Protons purchased and 227,200 Perodua purchased in 2018. Proton and Perodua have
recently faced foreign competition, however, as Honda and Toyota have gained momentum in
the Malaysian market with Honda surpassing Proton’s total sales in 2018.
Investors have to also be aware of the Sales and Services Tax (SST) scheme, which was
introduced in 2018, and replaced the Goods and Service Tax (GST). This resulted in a 10 percent
sales tax on automobiles, and saw prices of imported vehicles as well as those manufactured in
Malaysia increase when it was implemented.   

In  2018, Malaysia’s National Automotive Policy (NAP) announced that the third national car
will be an energy-efficient vehicle (EEV). The NAP has committed to incentivizing the
production of EEVs, regardless of investment amount or engine capacity, will now automatically
receive grants, tax exemptions, and manufacturing licenses.

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1.2.2. Vietnam in Asean’s automobile industry (compared to ASEAN)

Vietnam

Vietnam’s automobile manufacturing industry developed slower than its ASEAN neighbors, but
has witnessed exponential growth in recent years.

The industry began making progress in the early 2000s, and is on course to be one of ASEAN’s
fastest growing automobile industry over the next 20 years. Vietnam’s automobile industry
currently relies heavily on automobile part exports to its neighboring countries; it enjoys a trade
surplus of US$900 million in 2018 from exports worth US4.4 billion and imports worth US$3.5 
billion. Of the total, 42 percent of exports went to Japan, 16 percent to the US, and 9 percent to
China.

While automobile part production has been profitable for Vietnam, the nation is also looking to
expand its automobile manufacturing industry. In June 2019, the country signed the European
Union Vietnam Free Trade Agreement (EVFTA), which will see 71 percent of duties eliminated
in Vietnam exports, including automobiles and automobile components. When combined with
Vietnam’s low production costs, the EVFTA could attract some car and parts producers to
relocate from Thailand, whose FTA negotiations with the EU are still ongoing.

Vietnam has long been a prime location for foreign investment, as the country has significantly
less foreign direct investment restrictions than most surrounding countries. Ventures in the
automobile industry can be 100 percent foreign owned and do not need a Vietnamese national as
a director. The country also offers some import measures designed to offset the lack of
supporting industries in the country.

Compared to ASEAN

According to Vietnam Credit, the production capacity of Vietnam's auto supporting industry is
still low. The number of Vietnamese suppliers in the auto industry is much smaller than that of
Thailand. Thailand has nearly 700 tier 1 suppliers while the figure for Vietnam is less than 100.
As for tier 2 and 3 suppliers, there are 1,700 in Thailand while Vietnam has less than 150. (data
by ASEAN SECURITIES, MOIT ).

On top of that, auto parts currently produced in Vietnam are mainly labor-intensive parts with
simple technology such as glasses and tires.

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In addition, Vietnam’s participation in the supply chain and production of automobile
manufacturers in the region is very limited. Specifically, since 2018, imported cars of ASEAN
origin have enjoyed an import tax rate of 0%. However, with such low production capacity, it
can be seen that Vietnam benefits very little from the supply chain and production of automobile
manufacturers in the ASEAN region.

In 2020, the Covid-19 pandemic had a negative impact on the entire automotive industry.
However, Vietnam’s policy of supporting 50% of the registration fee applied to domestically
assembled cars at the end of June 2020 has helped the industry overcome difficulties.

It was this support policy that has also had a significant impact on the market when helping sales
of domestically assembled cars accelerate. The total sales of cars in Vietnam in 2020 was
296,634 units, which is just 8% lower than that in 2019.

2. Impact of AFTA on Vietnam's auto industry and other ASEAN countries

2.1 Impact of AFTA on Vietnam's auto industry

The ASEAN Free Trade Agreement (AFTA) with the introduction of auto import tax lines to 0%
in 2018 leads to a high chance of reducing selling prices. Tax reductions under FTAs also bring
difficulties in developing domestic supporting industries that require investment levels and close
linkages between domestic manufacturing enterprises. Meanwhile, the production foundation of
the Vietnamese automobile industry is currently only at the simple assembly of CKD
(completely knocked down), or the production of components on a very small and discrete scale.
Those are quite big pressures for domestic manufacturing industries.

Statistics of the General Department of Customs show that the proportion of CBU cars imported
from ASEAN (actually from Thailand and Indonesia) tends to increase gradually in both quantity
and value from 2014 to present. Particularly in the first 3 months of 2017, the number of auto
imports from ASEAN and India increased dramatically. It is forecasted that after 2018, the
number of cars imported from ASEAN into Vietnam will continue to increase even more. The
size of the domestic auto market is already small, by 2018, the opportunities for domestically
manufactured and assembled products will be even narrower with the dominance of CBU
products (CBU imported cars). from ASEAN. This leads to the production scale of domestic
enterprises shrinking, not ensuring efficiency. Manufacturers will face many difficulties in
investing in-depth in expanding production lines and technologies when the market demand is
not large enough.

The free trade agreement between Southeast Asian countries stipulates that the import tax rate
for intra-regional cars will be reduced to 0% from the beginning of 2018. The import tax rate has
been reduced while the Vietnamese auto industry is still underdeveloped and new. Only
assembly is the main activity, consumption and production volume is still low, which is clearly a
big risk for manufacturing enterprises in the industry. Sales of automobiles in Vietnam grew by
16% to 352,209 vehicles in 2018. The growth of car sales volume CAGR 5 years from 2013 to
2018 reached 23.8% at a very high level and partly agreed with GDP growth. The decline in
2017 was due to the psychology of waiting for car prices to decrease under the impact of AFTA,

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but the final car price did not decrease as expected because the number of imported cars was
very low due to the lack of preparation for the requirements of Decree 116.

Import tax on CBU cars: with normal passenger cars when imported into Vietnam, the average
tax rate will be about 70%. For some areas with agreements signed with Vietnam, they will enjoy
other tax rates such as ASEAN (0% from 2018), China (30 - 50%).

- Import tax on auto parts and accessories: The import and export tax on auto parts and
components currently fluctuates at 10 - 30% depending on the type. With important details such
as engines and engine components subject to a tax rate of 20 - 30%, other key accessories under
the GR V code are subject to a tax rate of 15 - 32%. Import tax on components imported from
ASEAN has also been reduced to 0% since the beginning of 2018.

Vietnam is still a country whose budget revenue depends heavily on indirect taxes such as
import-export tax, excise tax, and registration fee. These taxes are heavily levied on goods such
as vehicles and gasoline. It can be said that Vietnamese consumers are paying too many taxes if
they want to use cars as a means of transportation. As such, we consider the government's
industry support level to be Low. However, we expect a big change of management agencies
when affected by external factors, especially when import tax is reduced to 0% from some
regions.

2.2 Impact of AFTA on auto industry in ASEAN countries

Malaysia is also a country facing the same problem as Vietnam when participating in AFTA.
Since the beginning of 2018, in order to protect brands and retain other domestic manufacturers,
the government of this country has had to increase excise tax on imported CBU cars and cars
with low localization rate. Obviously this is a form of circumventing tariff commitments, but it is
necessary to not lose market share of the industry that contributes greatly to the economy to
Thailand and Indonesia.

Although ASEAN member countries are aware of this problem, non-tariff barriers are still
difficult to remove due to their diverse nature, from customs surcharges to product technical
requirements of products. And even if non-tariff barriers are eliminated, it will take decades for
poorer countries in the region to build up manufacturing facilities that can compete with
manufacturing leaders. in the region are Thailand and Indonesia, two countries account for more
than four-fifths of ASEAN's vehicle output

3. Strengths and weaknesses of Vietnam's auto industry

3.1. Weakness
For Vietnam's auto industry, according to the Department of Industry, currently the size of
Vietnam's auto market is only 1/3 of Thailand's and 1/4 of Indonesia's.
The small market, fragmented by many assemblers and many different models, makes it
difficult for manufacturing companies (both manufacturing, assembling cars and producing
spare parts) to invest and develop product production. series.

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 On the other hand, Vietnam's GDP per capita in the recent period has not been enough for the
majority of people to own cars as well as promote the domestic auto industry to develop and
generate profits. The weak traffic system (mainly due to poor traffic organization) has also
significantly affected the demand of the market, making the demand for cars in the economy
not large.
In addition to market bottlenecks, according to this Department, currently the cost of
producing domestic cars is 10-20% higher than that of other countries in the region, making
the cost of domestically produced cars suffer many disadvantages compared to cars. CBU
imports from ASEAN in the context of the removal of tariff barriers.
The reason is that the current market size of the Vietnamese auto industry is still small, so it
cannot take advantage of the economies of scale of the industry, making the costs higher than
other ASEAN countries that already have a large market. The market and the auto industry
are long ahead.
Components and spare parts for the production and assembly of cars are mostly imported
from abroad – having to bear the additional costs of packaging, transportation, storage,
insurance, etc., thereby affecting the cost of manufactured cars. domestically produced and
assembled.
3.2. Strengths
Vietnam’s middle class is expanding rapidly and that helps to boost consumer spending.
According to a PwC report the number of middle class Vietnamese will reach 44 million by
2020, and 95 million by 2030, that development will transform lifestyles in Vietnamese
society and increase consumer spending, especially of higher value-added products. The
country’s living standard is on the rise creating opportunities for foreign auto enterprises to
invest in the country.
Up to now, Vietnam has signed a total of 12 free trade agreements with countries and blocs,
of which 10 have taken effect. A rather special thing about the signed agreements is that 2
industries such as Automotive and Steel are always treated very special and are usually not in
the list of exempted tax lines because these are 2 industries. Key industries make great
contributions to the economy.
The reason why Vietnam accepts to reduce protection for an important and valuable industry
great potential for future development is to recapture foreign direct investment (FDI) inflows.
When participating in agreements with more countries, it will be easier for businesses to set
up factories in Vietnam to export their products to other countries. It can be understood that
Vietnam is choosing the path to return to Vietnam into a production factory, this is also a
necessary stepping stone to create a supporting platform to help local businesses grow.
4. Causes of strengths and weaknesses
4.1. Policies
Facing the competition of businesses when the import tax on CBU cars from ASEAN is reduced
to 0% while the import tax on components and accessories of domestic manufacturers from other
regions is maintained, the government has issued Decree 125/2017/ND-CP on tax exemption and
reduction for qualified manufacturers.

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Decree 116: Effective from the beginning of 2018, the Decree is considered as a technical barrier
to protect the domestic auto industry. According to this decree, all automobiles imported into
Vietnam must undergo safety and emission checks instead of only checking the first batch of
each model as before. While Vietnam has only one functional agency and the lengthy regular
inspection leads to difficulties in importing.
Vietnam is still a country whose budget revenue depends heavily on indirect taxes such as import
and export tax, excise tax, and registration fee. These taxes are heavily levied on goods such as
vehicles and gasoline. It can be said that Vietnamese consumers are paying too many taxes if
they want to use cars as a means of transportation. As such, we consider the government's
industry support level to be Low.
4.2. Automobile assembly business
Currently, the automotive industry uses a fairly high level of technology. At each production
stage each part of the vehicle will have its dominant technology. Today, automobile factories are
equipped with Robots and produce on automatic lines.
Depending on the business model and the different business environments, businesses may have
different levels of technology used. Manufacturers with big names in the world often own a lot
of technology and make many stages and parts on cars while small names only do a few steps
such as designing, assembling, and purchasing parts. other from suppliers. In Vietnam,
automobile factories currently only carry out assembling and finishing stages, including
stamping, painting, assembling, etc.
4.3. Domestic and foreign investment capital
In general, Vietnam initially has an industry of manufacturing and assembling automobiles
through the activities of foreign-invested enterprises and domestic enterprises. FDI enterprises
play a key role in this industry by expanding the industry scale from zero to being more than
enough to meet the domestic demand for automobiles. Assembly output and supply both
increased over the years, the following year was higher than the previous year with a designed
capacity of 200,000 vehicles/year, meeting about 56% of the demand, of which passenger cars
met about 94%, trucks response 74%. Among 13 foreign-invested enterprises, Toyota Vietnam is
the leading company in terms of output, followed by General Motors and Ford with the third
position in volume. Each year, joint ventures bring to the market about 50 strains. With different
types of vehicles, there are new models every year, but most focus on manufacturing and
assembling passenger cars and passenger cars under 24 seats, producing a few trucks under 2
tons. However, the product structure of the joint ventures is still unreasonable and has not been
able to take advantage of the market to expand production because most of these enterprises
assemble luxury passenger cars and high-class cars with high selling prices. Besides, the
production technology of all FDI automobile enterprises in Vietnam just stops at the simple
assembly technology of CKD2 form, there is no component production line, so auto parts still
have to be imported and the rate of production is still high. The localization rate is very low.
Through the activities of joint ventures, Vietnamese partners have attracted a large amount of
foreign investment capital in the development of the automobile industry, initially accessing
technology and techniques of automobile production. advanced in the world, attracting a
significant workforce, creating a premise for the development of supporting industries. The
officers and employees working at joint venture companies have partly grasped the automobile

15
assembly technology process of all kinds and received basic training to be able to handle the
assembly stages.
In addition, contributing to this industry scale must also include domestic enterprises, most of
which are state-owned enterprises such as Samco, Veam, Vinamotor, etc. Enterprises such as
Truong Hai, Vinaxuki... are worthy. respect, because they have dared to enter the market,
creating Vietnamese automobile brands whose products are more or less known to the domestic
market. Domestic enterprises mainly assemble and manufacture trucks and buses. Among the
domestic automobile assembling and manufacturing enterprises, Thaco has a significant
contribution with 80,421 vehicles in 2015 accounting for 88% of the total output of domestic
enterprises, followed by the output of General Motors. Vietnam Automobile Industry Company
(Vinamotor). However, at present, no manufacturer has launched a product with its design,
suitable for road traffic conditions in Vietnam. Most businesses still use the original design, then
change some technical parameters and equipment on the car to suit.
5. Solutions and policies
5.1. In the long term
 Government continues to support enterprises: The State continues to support the automobile
industry with tax support policies for manufacturing enterprises with high technology and a
large localization rate. It is necessary to have policies to encourage the development of
supporting technology for domestic enterprises to develop the production of components and
spare parts according to international standards and to prioritize investment in transport
infrastructure to connect multi-modal logistics. modes such as road, sea, port, port services;
The localization rate will be proportional to the support from the state, attracting foreign
investors to invest; Planning and developing the infrastructure system to meet the people's
demand for car use to promote the market. On that basis, there are reasonable measures to
ensure the transparent and healthy development of the domestic auto market through
technical barriers, measures to combat commercial fraud, consider a number of solutions.
other to develop the market; reviewing taxes and fees related to automobiles throughout the
value chain to adjust in the direction of facilitation in production, consumption and export.
Ensure equal competition between imported and domestically produced vehicles in terms of
product quality control.
 Enterprises continue to invest methodically and on a large scale: Vietnam's automobile
market is growing rapidly, so there are conditions to develop supporting industries and
increase the localization rate. In fact, the major automobile manufacturers in the world that
have achieved success today all have large export markets. No enterprise investing in
automobile production focuses on the domestic market. It must be export-oriented, that is,
expanding markets, thereby increasing output, maximizing costs and improving
competitiveness. With a country of 100 million people, developed economy, and improved
living standards, the demand for cars is increasing, enough to invest in large-scale

16
 production. Besides, the 0% tax incentive for cars in the ASEAN region is a great
opportunity that must be taken advantage of for export.
 Cooperation, association and specialization among enterprises to aim for larger
markets: Currently, most Vietnamese suppliers are still focusing on short-term goals, that is,
focusing on meeting short-term contracts, with little emphasis on creating and building long-
term cooperative relationships associated with regular information exchange with auto
assemblers. Customer care, after-sales services, and handling defective goods also need to
receive a lot of attention from Vietnamese suppliers. This significantly increases the
attractiveness of Vietnamese parts suppliers compared to international brands. Screening
potential manufacturers of spare parts and components to connect with car manufacturers and
assemblers, organize working sessions and visit local suppliers; seek support for potential tier
2 and tier 3 suppliers; supporting training... forming a system of suppliers of raw materials
and large-scale production of components. The automotive industry is an industry that has a
great impact on other industries. Not only manufacturing auto parts and parts, but behind it is
a whole material and mechanical industry…
 Developing a modern research and testing center: To improve design capacity, fast
development and diversify products, enterprises need to pay special attention to R&D
activities, invest in design software and modern testing equipment. Production management
system built on a digitized platform; apply intelligent management software and material
planning, maintenance management software, maintenance of machinery and equipment.
Building a team of professional R&D engineers, trained by experts with extensive experience
in the auto parts manufacturing industry. Links between manufacturers, research centers, and
experimental centers need to be "role-played" and closely linked. Economies of scale are
reflected in auto and component manufacturers around the world. According to statistics
from 27 leading car manufacturers and 36 leading suppliers, the profit margin of larger
enterprises is often higher because sales are large enough to cover R&D and initial
investment costs.
 Focusing on developing exports in each separate market: Studying the characteristics of
potential markets, building viable export projects, focusing on developing export products
according to specific requirements in each market. market... At the same time, it is
encouraged to increase the localization rate to meet the criteria of regional content (Regional
Value Content - RVC: Regional Value Content is a threshold that a commodity must meet
enough to be considered a product). origin) to enjoy the tax rate of 0% under the ATIGA
Agreement in the ASEAN region.

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Therefore, when new opportunities open up, the domestic auto industry can export high-value-
added components, and complete Vietnamese-branded cars need strong support policies to the
world. Moreover, from the government side, efforts should be made to promote the localization
rate further from the business side, only then will they enjoy preferential tax rates and be able to
compete in the domestic market as well as export.

Along with that, it is necessary to improve the competitiveness of enterprises in the industry
(both manufacturing enterprises and supporting enterprises), focusing on promoting the private
sector, small and medium enterprises; and at the same time have policies to encourage direct
investment abroad through economic restructuring.

In addition, it is also necessary to have a clear industry development policy in the long term to
sustainably develop the domestic assembled car market as well as the CBU imported car market.

In addition, it is necessary to adjust the capital flow to attract FDI in the direction of selective
attraction, in favor of quality over quantity, with conditional attraction in terms of economy,
society and environment to take advantage of benefits from FDI. bring like modern technology.
Enhance technology transfer and cooperation with partners in the region to overcome the
weakest stages of the auto industry and improve product quality.

In particular, it is necessary to gradually improve the synchronization and quality of traffic

technical infrastructure. Traffic systems such as roads, bridges, etc. need to be newly built and
repaired in time to meet the travel needs of the people, as well as focus on other solutions to
stimulate the demand for cars of the people. people

5.2. In the short-term,

it is necessary to implement the following measures

The first is to create market:

Planning and development of the system infrastructure to meet the demand for cars of the people,
especially in big cities like Hanoi and Ho Chi Minh City. The improvement of infrastructure

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includes the expansion of the road system, the construction of parking spots, the re-planning of
traffic, especially in big cities

- Take reasonable measures to ensure the intelligent development of the city. transparency and
health of the domestic auto market through technical barriers and measures to combat
commercial fraud.

- Ensure equal competition between imported and domestically produced vehicles in terms of
product quality control.

- In addition, it is possible to consider and consider a number of other solutions to develop the
market such as preferential lending policy to buy domestic cars; reviewing taxes and fees related
to automobiles throughout the value chain to adjust in the direction of facilitation of automobile
production and consumption, and healthy development of the domestic automobile market.

Secondly, remove the problem of the difference in production costs between domestic and
imported cars:

- Continue to maintain and effectively implement the program of preferential import tax rates on
components and spare parts for automobile manufacturing and assembly activities and the
program of preferential import tax rates for imported raw materials serving the production of
industrial products supporting the automobile manufacturing and assembling industry specified
in Decree No. 57/2020/ND-CP to support businesses to reduce the cost of assembling cars in the
country.

- Research to amend and supplement regulations on excise tax in the direction of applying
preferential policies on excise tax for automobiles with conditions to encourage enterprises to
increase production output, improve the added value created in the country

Thirdly, there is a consistent and clear policy for the auto market. The government needs to
show its determination to develop the market to develop the auto industry, according to which
state agencies must strictly follow that policy. The conflict between state agencies negatively
affects the auto industry, policies are often localized based on the viewpoint of the issuing
agency. There is a need for a unified body to develop the automotive industry.

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Fourthly, adjusting tax and fee policies to help businesses reduce costs, leading to lower car
prices, people have more opportunities to own cars. In parallel with the policy of expansion and
development, it is necessary to have policies to protect the market against the rapid development
of imported cars

5.3. For supporting industries

Regarding the development of the domestic automobile market The domestic market for the
Vietnam's automobile supporting industry products are mainly automobile assembly companies,
so developing the domestic automobile market is one of the important solutions. Vietnam's
automobile market has a strong development, in order to strengthen this trend and create healthy
and solid growth, it is necessary to have policies as the foundation. Regarding this part, it was
mentioned above

About product development

According to statistics, there are about 30,000 categories of automotive supporting industry
products with different requirements on production techniques and technology. Therefore, it is
necessary to build a list of automotive supporting industry products, thereby, helping policy
makers and companies to have a clear view of the automobile supporting industry, to overcome
this problem. vague perception of supporting industries such as identifying the development of
supporting industries with raising the domestic rate.

Encourage foreign companies to invest in the production of high-tech products in Vietnam.

In addition, supporting product research and application, establishing research centers for
application of automotive supporting industry products. These centers may be state-invested with
close links to the world's leading assembly companies and suppliers, or invested by companies
with government assistance.

In terms of investment and technology attraction, establish industrial zones and clusters for the
production of automotive components, develop small and medium-sized enterprises engaged in
the production of supporting products or provide raw materials for the production of
components. accessories

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Promulgating policies to encourage investment in the automotive supporting industry. Moreover,
these policies must also ensure the encouragement of large-scale investment, with the level of
incentives based on the size of the investment project.

Create favorable conditions for domestic and foreign enterprises to have project on technology
transfer and promotion of advanced technology transfer into Vietnam

Strengthening the role of automobile manufacturers association, establishing an association of

auto parts manufacturers. The associations will act as focal points for communication with the
Government or with other associations in developing the industry. The Association is also a
place to provide information to connect businesses in product consumption, investment
cooperation, technology transfer.

- Developing human resources for the automobile supporting industry. To do this, it is necessary
to expand the existing automobile mechanics vocational training institutions and improve the
quality of vocational training, especially in terms of practicality.

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