Vietnam’s modern automobile industry was born in 1991 with the establishment of the first joint venture, the Vietnam Motors Corp (VMC). The number of auto assemblers quickly increased and by 1996, eleven joint ventures were given licenses (in 2004 their total registered capital and capacity were US$ 526 million and 140,000 units respectively). Since 2000, the local automobile market started to enter a rapidly growing phase; the Vietnam Automobile Manufacturers Association (VAMA) reported its members’ total sales steadily grew at an average rate of 30% annually and reached over 40,000 units by 2004. Taking into account another 20,000 units of imported vehicles, the total market size in 2004 is over 60.000 vehicles.
Although the market has grown 7 times since 1999, it still remains very small compared with other regional markets. Working to inhibit further growth in the market is poor level of infrastructure and very high price of locally assembled vehicles. The local market has been protected behind high tariff barriers over the last decades but the protection is being dismantled as Vietnam is fulfilling its commitments with the Asian Free Trade Area (AFTA).
Foreign competition will present an enormous challenge to local producers as the local industry is still at very basic stage (assembling imported kits) with low rate of localization and there is no viable supporting industry. While the authority accuses local automobile manufacturers of exploiting the protective tariff to raise domestic prices, the producers complains about small market size and low level of equipment utilization.
Currently the market is dominated by Toyota, which also enjoys the highest level of localization. The pattern of competition is expected to change with the entrance of Honda next year, who is predicted to be a major player.
