Driving and Constraining Factors in the Vietnam Automobile Market


Published Date : Jul 11, 2014

Reforms in the Vietnam Automobile Industry

Vietnam automobile market [http://www.marketresearchreports.biz/analysis/180823] has undergone many changes. Various factors are contributing to the growth of this industry. On the other hand various elements are constraining the growth of this industry. During the past decade the economy of Vietnam has developed rapidly. The GDP of Vietnam rose from what it was in the year 2000 by almost four times in 2012. The major factor which has contributed towards Vietnam’s automobile industry growth is the policy in the year 1991 which allowed foreign funds to develop automobile manufacture and assembly in Vietnam.

Major companies like Toyota, Honda, GM, Ford, and others have entered the Vietnam market in a joint-investment deal or in sole proprietorship. This has allowed to establish different automobile assemble enterprise in Vietnam. In the meantime, the country has also established auto enterprises domestically. Currently, the total production capacity of the automobiles is estimated over a hundred thousand every year. In this country there are many hundreds of auto part manufacture enterprises. Most of these enterprises are SME features with low technology and low production. The manufacturing of simple auto parts is common. Some of the parts which are majorly manufactured include auto storage batteries and seats. Usually, the auto parts made in Vietnam depend on import.

Driving and Constraining Factors

In Asia, Japan has a strong hold on the automotive industry. Japanese automotive market is usually the pioneer in automotive industry and the auto-supporting industry, particularly in developing countries. The production of low-end and mid-end products is a sector which Japanese companies prefer to expand overseas at much larger levels than compared to in Japan. Even though, China is four times more likely than Vietnam for Japanese automotive companies to invest for manufacturing of mid or low-end products, the possibility is still higher than India. This makes Japanese automakers the major driving factor behind Vietnam’s automobile industry development.

However, there are many obstacles that are restraining the growth of this market. Traffic is one main restraining factor. The global standard chunk for traffic areas in cities is between 15 to 20 percent. However, in Ho Chi Minh City, this portion was between 8 to 14 percent. The existing government policy has technical requirements which result in very high price of vehicles, also there exists heavy taxation. The automotive manufacturing industry relies a lot on economies of scale which in turn depends on the significant levels of production. Also, without the initial development of the local market, it will be difficult for the market to become competitive enough to promote exports.

Market Trends

In the past decade the per capita of Vietnam climbed from USD 400 in 2000 to USD 1500 in 2012. During the year 2012, the volume of sales for domestic automobiles in Vietnam was around 93,000 decreases by 33 percent YOY. In the same year the import volume of total imported vehicles was 27,400 decreases by 49.8% YOY. The reason for this was the depressing national economy and the increase in the automobile import tariff and registration tax. In 2012, the largest import origin of autos was Korea which had the import volume of 11,800. This was followed by China which indicated an important volume of 3,900. Figures show that in 2013, the Vietnam automobile industry reached a growth higher than in 2012.

The increasing demand for commercial vehicles and passenger vehicles is fueled by the economic development, infrastructure construction, and the growth of per capita income. In Vietnam auto manufacture companies have the advantage of low land, energy, and labor cost. However, these companies suffer due to the imperfect auto industry chain.

Vietnam automobile industry competes with Indonesia, Thailand, and other ASEAN countries. There is also competition with China, Japan, and Korea and those countries that have an ASEAN agreement. According to a market intelligence company, the import tariff for China, Japan, and Korea will be 5 percent in 2018. The government in Vietnam is also planning to introduce various supportive polices to boost their domestic automobile industry.

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