Vietnam is targeting car manufacturing as a “spearhead industry” that could help it move up the global value chain.
Official data compiled by the Trade Ministry shows that Vietnam has more than 400 small-and medium-sized enterprises involved either in assembly or spare parts production, and nearly half of them are foreign-invested companies.
Experts forecast domestic car makers will produce 50,000 units annually by 2035, spurred by rising demand and strong government support.
Vietnamese people last year bought a record-breaking number of 244,914 cars, said the Vietnam Association of Automobile Manufacturers, a 55 percent increase from 2014 sales.
Statistics show Vietnam imported more than 125,000 units in 2015, a 77 percent jump from 2014. For 9-seat cars and smaller vehicles, the number reached more than 31,000 units, a significant increase of 104 percent compared to the previous year.
However, the fact that Vietnam still heavily relies on imported automobiles to meet the demand at home has put a tremendous burden on its local car industry, which is set to be faced with more challenges in the era of new-generation free trade agreements.
Following the ASEAN Trade in Goods Agreements, Vietnam will cut car import tariffs incrementally over the next four years for imported cars from ASEAN countries. The current tariff of 50 percent will be cut to zero by 2018. As a result, imports from ASEAN neighbors are expected to increase exponentially.
That means Vietnam's car industry could be significantly affected when a variety of free trade agreements come into effect, putting local manufacturers under more intense competition from imports.
The fact that Vietnam’s support industries are evidently weak is the main reason for the sluggish development of the automobile industry, said Pham Tuan Anh, deputy head of the Heavy Industries Department under the Ministry of Industry and Trade.
The ministry said local companies can produce some simple parts, such as mirrors, glass, seats, wiring, batteries, tubes and plastic products, but few have invested in the advanced technology used to manufacture auto bodies.
Vietnam failed to reach a target set for 2010 that local support industries would meet up to 60 percent of automobile manufacturers' demands. For example, local suppliers currently can only meet 7-10 percent of manufacturing orders for 9-seat cars.
The government has a plan to shake up the support industries, including incentive policies for automobile suppliers, to remedy the situation.
According to the plan, Vietnam’s support industries will be able to meet from 55 to 80 percent of local car markers' demands by 2035, increasing the number of completely-built-up cars to 50,000 units, or 20 percent of market demand.