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Motorisation by 2020-2025, the trend anticipated for Vietnam
According to the Ministry of Industry and Trade, in 2020-2025, Vietnam’s automobile market will boom as less-than-10-seat cars will dominate the market. Meanwhile, Vietnam is not yet preparing for this.
Motorisation indispensable
According to Ngo Van Tru, Deputy Director of Heavy Industries Department under the Ministry of Industry and Trade (MOIT), the motorisation process will experience five stages. The first one will be the pre-motorisation period, when there are less than 50 cars for every 1,000 people. The motorisation period will follow the pre-motorisation one, when cars become more popular with 50 cars for every 1,000 people.
The third phase will be the sanitation period, when every family has one car, while every 1,000 people have 250 cars. The fourth period will come when families begin purchasing more cars, raising the number of cars for every 1,000 people to 400. And the fifth is the period when a lot of families have more than one car, with 500 cars for every 1,000 people.
Vietnam is now in the pre-motorisation period with 18 cars for every 1,000 people. However, it is expected that as of 2020, when the national economy is developing well, income per capita is increasing and transport infrastructure improved, the demand for cars with less than 10 seats will increase sharply.
MOIT has estimated that by 2015 there will be 28 cars per 1,000 people, while the figures will be 38 and 88 by 2015 and 2020, respectively. As such, the motorisation period in Vietnam will occur between 2020 and 2025.
If Vietnam cannot develop the production of less-than-10-seat cars, Vietnam will have to spend an estimated $12bil a year from 2025 to import cars, which will make the country face a sharp trade deficit.
Also according to MOIT, Vietnam will have 166,000-235,000 automobiles joining the market by 2015, 246-347,000 cars by 2025 and 592-836,000 by 2025.
Of these, buses and trucks will account for 27%, while cars for personal use 73%. Currently, the ratio is 46% vs. 54%, and it is expected to further increase in the immediate time, but will decrease later.
How to prepare for motorisation?
Tru from MOIT said that the best way to prepare for motorisation is to develop the automobile industry, with the focus on the development of some strategic models and supporting industries in order to increase the localisation ratio.
In order to develop the automobile industry, Vietnam needs to have suitable policies and ensure the growth of the domestic market. The bigger the market is, the more favourable conditions will be available for the localisation process.
Vietnam will have 10 more years to develop its automobile industry. Under its ASEAN/AFTA commitments, Vietnam will have to impose 0% on the car imports from ASEAN countries.
Meanwhile, Vietnam is now still prioritising the development of trucks and buses, while less-than-10-seat cars are still discouraged with high taxes on sets of car parts, high luxury taxes, and high ownership registration fees.
The consumption limit has been narrowing the less-than-10-seat car market. Japanese automobile manufacturers said that in order to develop the automobile industry, the market scale needs to have the consumption of 300,000 units a year. In 2007, the figure was 100,000 units, and will decrease to 80,000 cars this year as a result of the policy to limit consumption.
Meanwhile, Vietnam’s current supporting industries prove to be underdeveloped. The country now has 100 enterprises that make car parts and accessories, mostly simple products like batteries, electric wires or antennae.
“The key to automobile industry development is localisation. Vietnam will need to have thousands of enterprises making parts and accessories, not just 100 enterprises as nowadays,” Tru said.
10 years – enough for everything?
It took European countries 100 years, Japan 50 years and other countries, like South Korea and Thailand, 30 years to develop their own automobile industries.
Vietnam’s automobile industry currently is at the same level as Thailand’s 30 years ago. Therefore, worries have been raised that 10 years will not be enough for Vietnam to develop its automobile industry. The question remains unanswered.
It is not simple to shift from making buses and trucks to making cars, as making cars requires high technology.
As said above, if Vietnam’s automobile industry does not develop, it will have to import cars and face a high trade deficit. As a result, the government will have to reduce the trade deficit by imposing high taxes on imports, which will make cars very expensive and the demand decrease. As such, motorisation would come later than forecast and surely affect socio-economic development.
VNN
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