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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.
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.
