Japanese carmakers are likely to leave Vietnam for other regional markets to improve profit, the chief representative of the Ho Chi Minh City office of the Japan External Trade Organization said on Tuesday.
The automobile sector is all about production capacity, and Vietnam cannot compete with regional peers Thailand and Indonesia, Takimoto Koji told reporters at a press conference in Ho Chi Minh City.
The more cars a company can make, the lower the production cost becomes, explained the JETRO chief representative.
Car production capacity in Vietnam is around 250,000 units per year, compared to more than 2 million in Thailand.
“This makes it likely that Japanese carmakers will leave Vietnam for Thailand or Indonesia, produce cars there and import them back for sale to Vietnam,” Koji said via a translator.
Koji also explained that a car plant can only be profitable with a minimum capacity of 200,000 units per year.
Vietnam’s total capacity of 250,000 units per year is a combined figure of all carmakers, meaning each company fails to reach the minimum profitable capacity, leading companies to consider relocating their production outside of Vietnam, Koji underlined.
Four Japanese carmakers, Toyota, Mazda, Honda and Suzuki, are currently operating in Vietnam but may well exit, the JETRO official warned, not considering tax cuts on car imports between ASEAN countries as per a trade agreement signed by the ten-country bloc in 2009.
At Tuesday’s meeting, Koji also attributed the limited production capacity of the Vietnamese automobile sector to its weak supporting industries and low localization ratio, which is the proportion of materials sourced domestically in the production of automobiles.
“Supporting industries are the foundation of local automobile industries, and there has been little improvement in Vietnam in recent times,” Koji said.
Off-setting this news, the JETRO official said that while Japanese carmakers may leave Vietnam in the near future, Japanese businesses are likely to increase investment in Vietnamese consumer goods and services.