[Vnbiz] EIU Vietnam Automotive Competition and Investment

[Craig Stevenson]

Vietnam automotive: Competition and investment
   Printer version<http://www.viewswire.com.ezproxy.umuc.edu/index.asp?layout=IwPrintVW3&article_id=811137666&printer=printer>
 September 4th 2006

   FROM THE ECONOMIST INTELLIGENCE UNIT

Buoyant demand fuels motorcycle assembly growth

Assemblers of motorcycles have recorded strong growth in recent years. In
2005 around 1.8m units were assembled, up from only 610,000 in 2001. The
motorcycle assembly sector, which comprises more than 50 firms employing
25,000 workers, is dominated by seven large FIEs, including Honda Motor and
Yamaha of Japan and the Taiwan-invested Vietnam Manufacturing and Export
Processing Company (VMEP). In April 2005 the government quietly removed the
ceilings on the number of motorcycles that FIEs are allowed to produce. Many
of the smaller local firms assemble motorcycles using Chinese parts, but
some of these firms are not expected to survive. Reflecting the expansion in
locally sourced parts, in 2005 imports of unassembled motorcycle kits
totalled US$470m, down from around US$787m in 2000. However, imports of
assembled units rose to US$63.5m in 2005 from only US$200,000 in 2000.

Carmakers suffer high taxes and overcapacity

Multinational manufacturers of cars and trucks established production bases
in the mid-1990s in the expectation that the combination of a large
population, rapid economic growth and few cars, trucks or competitors would
lead to rapid sales growth. However, demand has not matched these high
hopes, and all local assemblers suffer from overcapacity and high production
costs. By end-2005 the 11 original members of the Vietnam Automobile
Manufacturers Association (VAMA), all foreign-invested joint ventures, had
sold only around 208,000 vehicles. After a prolonged lull in the late 1990s,
sales of domestically produced vehicles more than doubled year on year to
around 14,000 units in 2000. Annual sales volume continued to rise in
2001-03, reaching over 42,500 units in 2003, before falling back to just
over 40,000 units in 2004 and around 35,000 units in 2005. The downturn in
2004 and 2005 reflected the impact on demand of the government's decision to
reduce the favourable special consumption tax (SCT) breaks applied to
locally assembled vehicles, compared with those applied to imported
completely built-up (CBU) units.

In 2005 total vehicle output reached nearly 65,000 units, up by 31% year on
year. The foreign-invested automotive assembly sector accounts for the
majority of this output. In 2005 foreign-invested assemblers, which mostly
produce sedans, turned out more than 38,000 vehicles, up by 4.7% year on
year. However, the local private sector and the state-owned sector, which
mainly make buses and trucks, recorded much greater increases in output.
Local private firms produced 6,823 units, up by 375% year on year, whereas
the state sector produced more than 14,400 units, up by around 110% year on
year.
The Economist Intelligence Unit
Source: Country
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