Vietnam Gearing Up for Rapid Auto Industry Growth

HANOI – The sixth Vietnam auto show that wound up this month brought together 10 auto makers that assemble vehicles in this Association of Southeast Asian Nations member country and make up the roster of the Vietnam Automobile Manufactures Assn.

VAMA members, representing Asia, Europe and the U.S, showcased an array of new locally built and imported vehicles, as they continue to put into place the building blocks for what is expected to be explosive growth in car ownership here over the next two decades.

The show was a far cry from Vietnam’s Autopetro 2006 motor show held in Ho Chi Minh City, which underlined the increasing influence of Chinese vehicle manufacturers in the country.

Vietnam poses a unique set of metrics for auto makers that still are dipping their toes in the water nearly 20 years after the country opened its market to foreign car companies, knowing there are challenges as well as opportunities that could reap major rewards. And with good reason.

Though small in size, Vietnam is the world’s 13th most populous nation, presently approaching the 90 million mark and expected to grow to more than 100 million people within several years. Some 80% of the land mass comprises hills and mountains.

In many respects, this nation barely has changed since the Communist era and is known formally as the Socialist Republic of Vietnam.

Today, there are about 1 million passenger vehicles on the roads, compared with more than 20 million motorbikes. Indeed, Vietnam is the world’s fourth-largest motorbike market after China, India and Indonesia.

Auto makers working to educate Vietnamese away from motorcycle culture.

This, in itself, poses a challenge, as the road infrastructure isn’t capable of absorbing mass car ownership – a fact already evident here and in Ho Chi Minh, the country’s two largest cities. Yet, officials expect the motorization of Vietnam to take place between 2020 and 2025, foreseeing rapid growth during that period.

The government also has ambitious plans to develop an industrial platform that will turn this almost Cold War-era nation into Asia’s newest tiger economy, playing catch-up with its more industrialized neighbors.

The automotive industry is seen as the heart of this ambitious drive. Officials plan to emulate neighboring Thailand, which has grown to become the biggest car market in Southeast Asia and, importantly, also learn from mistakes the Thais have made along the way.

As such, Thailand is a perfect case study for the developing industry. It has three decades of foreign-manufacturer impetus and recently achieved production of 2 million vehicles annually, with more than half destined for export.

Thailand has 16 domestic vehicle assemblers and more than 2,300 Tier-1, -2 and -3 suppliers. There is high localization of content: 80%-90% for pickup trucks and 30%-70% for passenger cars. The country is the world’s second-largest producer and market for pickups.

Thailand also is successful in reciprocal synergies between its Tier-2 suppliers and their (mostly) Japanese partners in terms of investment and technology transfer. Among the Tier 3s, the auto industry is doing well in material supply as well as mold- and die-making.

Thailand's most recent strategy of pushing to become a global hub for the production of small, fuel-efficient “eco-cars” is set to pay off handsomely. Plus, it has the footing of a domestic car market that is 10 times larger than Vietnam’s.

All are factors Vietnam can analyze but will be able to emulate only in the long term.

At present, the local car market is small. VAMA predicts a total of 100,000-unit sales this year, not including buses. That’s down from 2009’s record 119,459, when a state stimulus package pushed the market upwards and pulled some purchases forward.

Higher interest rates this year also have kept customers away from dealer showrooms. The government is unconcerned, preferring a gradual rise in vehicle ownership as it enacts plans to develop a national infrastructure.

In terms of fuel efficiency and clean-air emissions, Vietnam has a ways to go if it wishes to be competitive in the export markets, as it currently stipulates all vehicles adhere to Euro 2 standards.

Ten years ago, the Vietnamese new-vehicle market barely flickered: Just 13,239 units were sold by VAMA members in 2000. A growth spurt saw the market jump to 18,960 in 2001 and 26,835 in 2002.

That precipitated an impressive climb to 42,552 units in 2003. Sales steadied at 40,000 from 2004-2006. But they doubled in 2007 to 80,392, before reaching a new peak of 111,946 in 2008. An additional 8,000 vehicles were delivered in 2009.

While the government mulls its industrialization plan, auto makers appear willing to play a long game, as they lay their foundation and develop their brand presence.

All vehicles here currently are assembled from complete-knocked-down kits, most with low levels of localization.

<link rel=

Enlarge Chart

">

This then presents the biggest challenge for the government in developing a local auto industry: creating a layer of Tier-1, 2 and 3 suppliers, while generating economies of scale and levels of quality required in convincing vehicle manufacturers to incorporate higher levels of local content.

This year’s auto show was very much a manufacturer’s show, reserved exclusively for VAMA members. This means the handful of brands that import only completely built-up models, such as BMW AG, were not present. Split into two halls, some 120,000 visitors were expected as consumers slowly are educated away from a motorcycle culture.

An examination of VAMA members at the show reveals a wide range of auto makers, brands, countries and cultures, from Asia to Europe to the U.S.

Honda Motor Co. Ltd.

Honda’s operation in Vietnam is a 3-way joint-venture with Honda Automobile (Thailand) Co. Ltd. and the Vietnam Engine and Agricultural Machinery Corp.

The company assembles two models: the current-generation Civic 4-door sedan with 1.8L and 2.0L engines (since 2006), and the CR-V cross/utility vehicle with a 2.4L i-VTEC 4-cyl. (since 2008).

The vehicles are built at Honda’s rapidly expanding factory next to Hanoi’s Noi Bai International Airport. The two models have sold a combined 18,000 units to date. Next up is the ’11 Accord, which will be imported in second-quarter 2011 as a CBU from Thailand, where it is built.

Although Honda is a relatively new player here, it has experience in the country. “While our automobile business is still at early stage, Honda has been doing motorcycle business in Vietnam since 1997,” says Kok Seng Gan, deputy general director-Honda Vietnam Co. Ltd.

In a short period, the auto maker has achieved strong levels of localization, which currently stand at 25%-30% and includes components such as headlights and wiring harnesses.

Five Honda cars were displayed at the auto show, including the all-new 3-door CR-Z hybrid-electric sports car, presented to emphasize the Japanese auto maker’s commitment to environmental responsibility.

VinaStar Motors Corp. (Mitsubishi Motor Corp.)

One of the first JVs assemblers on the scene, VinaStar’s first model, the Mitsubishi L300, was launched in 1995. Since then, the company has built almost 40,000 vehicles at its production facility in Binh Duong province.

Key models are the Triton pickup, Grandis MPV and Pajero SUV. To showcase the brand’s technology, the i-MiEV electric car, which is being rolled out across selected global markets, was displayed at the show. The “Sport” version of the Pajero, which is performing well in many ASEAN markets, was another highlight.

Suzuki Motor Corp.

Suzuki has been in Vietnam since the mid-1990s. Its local JV, Vietnam Suzuki Corp., sells five models, mostly drawn from the auto maker’s small truck portfolio, a mix that is ideally suited to tap into the demands of the urban landscape here.

Vietnam first ASEAN car show to display Orlando CUV.

Three vehicles are derivatives of the Super Carry Truck and assembled here from CKD kits. The Super Carry Truck has been built in Vietnam since 1996, while the window and panel van versions were added to the range a year later.

The Super Carry Pro entered the market this year as a CBU. The APV, a small multipurpose vehicle built in Indonesia, has been assembled locally since 2006. All the Vietnamese-made models feature some component of localization.

At the show, Suzuki showed two passenger cars – the Celerio (Alto), a global low-cost car sold in other ASEAN markets and imported as a CBU from India, and the new midsize Kizashi sedan. Both were displayed to demonstrate the depth of the Suzuki brand and its technology, as well as to gauge feedback from show visitors.

The Swift recently was discontinued here, but Suzuki is evaluating new passenger models for the market. “We are in the process of studying which models suit Vietnam,” says Takaaki Kurihara, general manager-sales.

Ford Motor Co.

Ford is the largest foreign direct-investment auto maker in Vietnam. It established its assembly facility in Hai Duong province in 1997 and today produces six models there.

The U.S. auto maker’s highlight of the show was the reveal of the new Fiesta B-car. Peter D. Fleet, president-ASEAN Sales and Service Thailand, says this is the “right car at the right time for Vietnam.”

The Fiesta will arrive here in CKD format in both hatchback and sedan versions. It goes on sale in first-quarter 2011. No pricing has been announced, but Fleet says it will be “highly competitive.”

The Fiesta heralds the start of Fords rollout of three important new models in Vietnam over the next three years. Next up will be the new Ranger pickup that was developed and engineered in Australia and set to be built in neighboring Thailand for the ASEAN markets.

It will make the short journey to Vietnam, like the current model, in CBU format. The third model will be the next-generation Focus, arriving in 2013.

Ford’s local CKD assembly currently includes the current Focus, Mondeo, Escape, Everest SUV and Transit. Several of these models were displayed at the show including the Everest ( built on the Ranger pickup platform), described by Fleet as having been a “tremendous success” in Vietnam.

Mercedes-Benz

Mercedes is the top-selling premium brand across most Asian markets, including Vietnam, where it has been present for 15 years. Mercedes-Benz Vietnam (MBV), based in Ho Chi Minh City, is a JV between Daimler AG (70%) and Saigon Automobile Mechanical Corp. (30%) and assembles three models locally.

These include the C300 Avantgarde, C250 CGI BlueEfficiency and C200 CGI BlueEfficiency; E300 sedan and E250 CGI BlueEfficiency; GLK 4Matic; and Sprinter light-commercial vehicle.

The C-Class has been built here for four years, the E-Class for six years and GLK 4Matic for more than a year, while the Sprinter has been produced for the full 15 years that MBV has been manufacturing here. Unlike the other models, the commercial van has high local content.

Everest, built on Ranger platform, “tremendous success” in Vietnam, Ford exec says.

Since January 2008, MBV has been licensed to sell models across the range in CBU format, meaning cars such as the S-Class, CLS, R-Class and SLK also are on the roads of Vietnam. The auto maker’s strategy to diversifying its portfolio appears to be reaping dividends, with first-half 2010 sales up 30% year-on-year.

MBV unveiled two vehicles at the auto show: the C300 AMG and R300L, both of which will be imported as CBUs. To date, MBV has sold 18,000 vehicles in Vietnam.

Toyota Motor Corp.

The world’s No.1 auto maker also is the top-seller in Vietnam. Offering five models locally, Toyota achieves the highest levels of localization and is the only auto maker here to boast a complete production line: stamping, welding, painting and assembly. It also exports some components globally.

Toyota Motor Vietnam is a JV and to date has sold an unrivalled 162,000 units.

The three locally assembled models imported in CKD format are the Fortunner SUV and Altis (Corolla), both of which have their CKD components shipped from Thailand, as well as the Innova CUV. The Innova has some of the highest local content on the market.

Since TMV introduced the first-ever frame production line to Vietnam two years ago, the Innova’s localization has climbed from 33% to 37%. The majority of components are body panels and structural sections, including the front wings and rear three-quarter sections. All these parts are pressed in-house.

Toyota’s other two models, the Yaris and Camry, arrive as CBUs.

Unique to the market at the time, TMV in 2004 opened the “Toyota Auto Parts Export Center” and has achieved success in exporting components, including antennas, exhaust control valves and throttle pedals, to 10 countries in the Toyota global network.

These include Thailand, Indonesia, the Philippines, Malaysia, India, Argentina, South Africa, Venezuela, Taiwan and Pakistan.

Toyota treats environmental responsibility here in the manner it does globally, with all wastes destroyed or recycled.

General Motors Co.

Vietnam Daewoo Motor Co. Ltd. has the largest lineup of locally assembled models in Vietnam, consisting of six models. The newest is the Chevrolet Cruze, which comes from GM Daewoo Auto & Technology Co. in South Korea as a CKD kit.

GMDAT owns, directly operates and controls the subsidiary vehicle assembly and sales operations in Vietnam.

The Cruze is offered with either a 1.6L E-TEC or 1.8L ECOTEC engine, the latter with the Hydromatic 6-speed automatic transmission. The other models to arrive CKD are the Chevy Spark, Captiva and Viviant and Daewoo Gentra and Lacetti.

VIDAMCO at the show unveiled the Orlando in concept form, meaning the new CUV has been seen here ahead of many of GM’s key strategic ASEAN markets, such as Thailand.

The Orlando will go on sale next year as GMDAT kicks off an ambitious strategy that will see it rolling out six new models in Vietnam over the next four years to allow it the widest possible range of segments.

To date, GMDAT has sold 67,000 units in Vietnam and is targeting 12,000 sales this year. Its manufacturing operation in Hanoi has the capacity to assemble 20,000 units annually, giving the auto maker plenty of options to push into new market segments.

Next year, the restyled Captiva will replace the current model here, followed by a midsize car in 2012 and a subcompact in 2013.

VIDAMCO recently reached a milestone by receiving its first export order, for 694 units of the Viviant to Peru. The first batch of vehicles was dispatched in September.

Mekong Auto

Mekong Auto, a JV with a Japanese industrial group, is Vietnam’s oldest vehicle manufacturer, granted a license on June 22, 1991. It is the pioneer of the local auto industry and as such took pride of place at the show.

Mekong Auto has a two-pronged approach to the market. In a throwback to the Cold War era, it imports CKD products from North Korea’s Pyeonghwa Motors Corp. (PMC), as well as sells selected CBU models from Fiat Automobiles SpA.

The relationship between Mekong Auto and Fiat is one of the longest-running in Vietnam. It previously assembled Fiat models in CKD format from the mid-1990s until just a few years ago. Today, the relationship is focused on three CBU models, the Fiat 500, Grande Punto and Bravo.

Mekong Auto imports PMC’s Pronto SUV and Premio pickup from North Korea in CKD kit format, but its show highlight was the debut of the 1-ton Paso light-commercial vehicle.

The no-frills workhorse, with an unashamedly BMW-style front grille, can be ordered as a flatbed truck or be fitted with a custom box or tipper.

The two options were presented at the show alongside the Fiat 500 limited-edition “Pink” version, an unlikely pairing that serves as a reminder of just how far the Vietnam auto industry already has come.