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High production costs augment car price, turn off parts investors in Vietnam: conference

Wednesday, October 31, 2018, 18:35 GMT+7
High production costs augment car price, turn off parts investors in Vietnam: conference
Imported cars are seen at a port in Ho Chi Minh City, Vietnam. Photo: Tuoi Tre

It is unlikely that car prices will go down anytime soon in Vietnam when the market is rather small, elevating production costs and deterring support industry investors, insiders have said.

Vietnam is still a small auto market where about 300,000 cars were sold last year, Shinjiro Kajikawa, deputy general director of Toyota Motor Vietnam, said on Tuesday at a conference on auto support industries in Hanoi.

The larger a market is, the easier it is to lower production costs, Shinjiro remarked.

“The cost to produce cars in Vietnam is 15-30 percent more expensive than that of imported automobiles,” he said.

“That figures would still be10-20 percent even when transport expenses have been included.”

Local firms have failed to offer good quality and delivery services while costs have become a real burden to them, the executive added.

He said that a carmaker would save US$1.9 million if it could cut $48 per set of components and production is 40,000 vehicles a year.

“But that still would not be enough to recoup investment early,” Shinjiro said.  

However when production rises to 60,000 automobiles a year, a company would get back what they have invested in four years, he asserted.

“This proves the importance of production. But there has not been proper policy to boost production, which is a real problem,” the Toyota executive said.

Vietnam now has 358 firms operating in auto-related industries, a small number compared to 2,500 companies in Thailand, said Luong Duc Toan, a senior official from the Vietnamese Ministry of Industry and Trade.

Carmakers tend to order components from foreign-invested firms in Vietnam, with purely domestic companies grabbing a minute share of the pie, Toan said.

Over 90 percent of parts suppliers are foreign-invested firms, he noted.

“An extremely small number of local firms can join the supply chain of carmakers in Vietnam,” the official admitted.

A representative from the Vietnamese small and medium enterprises said capital is an obstacle as a car parts production line costs tens of millions of U.S. dollars.

“Firms say they only invest if the market is stable,” the representative said.

Cars are in demand in Vietnam as the middle class is growing.

Some car manufacturers include Toyota, Truong Hai, and VinFast.  

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Viet Toan /Tuoi Tre News

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