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All pain for no gain

Released at: 07:20, 31/05/2015

All pain for no gain

If motor car purchasers don't benefit from upcoming changes to tax rates then no one will benefit.

by Minh Tien

Three months after paying a deposit, Mr. Le Nam Thanh, the director of a financial consultancy in Ho Chi Minh City, finally became one of the first to own the new Toyota Camry 2015 early last month. “I paid the deposit before the Tet holiday but it was more than three months before I could sit behind the wheel and go and meet my business partners,” he said. “I was tired of waiting. My father told me to keep my 2005 Toyota Altis until 2018, when prices would fall due to Vietnam’s commitments with ASEAN to remove car import taxes. But I really wanted the new Camry and didn’t want to drive around in a ten-year-old car for another three years.”

The question for Mr. Thanh of whether to buy now or wait until later pails into insignificance compared with the decisions to be made by car manufacturers about continuing to manufacture or to move to importing motor cars instead. According to Mr. Yoshihisa Maruta, CEO of Toyota Vietnam and Chairman of the Vietnam Automobile Manufacturers Association (VAMA), it normally takes three years to prepare for the launch of a new model.

At an April meeting where he presented the company’s business plan to shareholders, Mr. Maruta asserted that TMV was considering ceasing production in Vietnam and becoming an importer, in order to reduce risks and enjoy the benefits from upcoming tax exemptions. He reminded the government that if no specific support policies are issued then not only Toyota but also many other manufacturers will consider this option.

Not giving up

Twenty years after a number of joint venture auto manufacturers were established, Vietnam is yet to set up a real automobile industry. And when tariff barriers are reduced or eliminated under international integration commitments, the collapse of the industry, with manufacturers exiting completely or becoming importers, may become a distinct possibility within the next few years despite how much policy makers may think they have done to nurture the industry over the last two decades.

However, many present at a recent panel discussion on policies for the automobile industry expressed a belief that such a collapse is unlikely, given the attractiveness of Vietnam’s 90-million strong market. “With the population soon to reach 100 million, the country’s automobile market still has prospects not only in the domestic market but also in exporting to other ASEAN countries,” said Mr. Tran Ba Duong, Chairman of the Truong Hai Auto Corporation (THACO).

Mr. Maruta also views Vietnam as an ideal market because of its demographics and especially with the government working towards the country becoming a modernized country with an industrialized automobile industry by 2020. If the necessary conditions are in place, he believes, Vietnam will be able to fully develop the industry. “All members of VAMA wish to continue production in Vietnam,” he said.

From a State management perspective, Deputy Minister of Industry and Trade Tran Tuan Anh confirmed the government’s determination to develop the industry into the future and the second issuance of the Automobile Master Plan last year is the clearest expression of its will. It’s also worth noting that Prime Minister Nguyen Tan Dung has more than once urged the Ministry of Industry and Trade (MoIT) and related ministries and government agencies to quickly complete policies and mechanisms for the industry to fully develop.

Saving the industry

It is clear that the automobile industry is still considered by the government as a key industry that makes an important contribution to the economy. Manufacturers do not want to give up on the industry despite having to face numerous difficulties from both internal and external factors. The question of how to develop the industry therefore remains one that is difficult to answer in full.

Many claim that Vietnam will never have a true automobile industry if proper policies aren’t introduced quickly. Others have even said that, regardless of how many incentives may be provided, the industry simply can’t grow fast enough to compete with car importers when tax regimes change in 2018.

Representatives from MoIT and many automobile manufacturers, however, remain confident in the industry’s future, as long as the government continues to provide production incentives. With import duties on automobiles from other ASEAN countries about to be removed, many have asked the government for exemptions on import taxes on automobile parts and components not only from ASEAN countries but also from other countries outside of the region.

Mr. Maruta has also proposed changing the special consumption tax (SCT) on locally-assembled vehicles (known as completely-knocked-down, or CKD, units), by basing it on the cost of importing parts and components rather than on factory prices. “If the Cost, Insurance, Freight (CIF) method was to be applied then manufacturing enterprises with higher localization ratios would benefit and they would see it as encouragement to improve their ratios further,” Mr. Maruta believes.

The only problem remaining, he went on, is quickly pushing the local automobile manufacturing industry into a stable phase where the market is large enough and enterprises are strong enough to compete with completely-built-up (CBU, or complete motor cars) imports. He emphasized that besides the efforts of the enterprises themselves it is necessary for the government to quickly pass appropriate new support policies.

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