Companies Abandon Vietnam's Auto Sector Due to Underdeveloped Supply Chain

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Concerns about an underdeveloped manufacturing supply chain in Vietnam's automotive sector are causing many large investors, such as Toyota Motor Corporation (NYSE:TM) (Toyota City, Japan), Mazda (OTC:MZDAY) (Hiroshima, Japan) and Ford Motor Company (NYSE:F) (Dearborn, Michigan), to abandon projects there. Meanwhile, other countries in the region are benefitting from new auto company investments.

Nissan (Nishi-ku, Yokohama, Japan) plans to invest an additional $100 million in an auto factory in Indonesia to increase production capacity from 100,000 vehicles to 250,000 vehicles in 2014. Honda Motor Company Limited (NYSE:HMC) (Tokyo, Japan) has said that it is considering building a new car factory with an investment of $337 million and an annual production capacity of 180,000 vehicles.

Honda reports that it has not fully exploited the chain of the $60 million plant in Vinh Phuc province, Vietnam, and does not plan to make further investments.

Ford is intending to focus more on Thailand and the Philippines, although more than 10 years ago, it saw Vietnam as an attractive investment destination.

Economists say that foreign investors are not leaving the Vietnam market only because of lower market volume, but also because of the underdeveloped support industries. In addition, the auto sector development policies in Vietnam are unclear and unstable. The Ministry of Industry and Trade acknowledges that the management bodies and businesses are not aware of the importance of the supporting industries, so the legal framework and mechanisms for developing the supporting industries in general and the auto industry in particular are issued very slowly.

In October 2004, Vietnam approved planning for its auto industry; in July 2007, the first plan for the supporting industry was ratified, and in February 2011, the decision on the development policies for several supporting industries was issued. However, enforcement of policies is very limited, said Nguyen Manh Quan, director of the Department of Heavy Industry in the Ministry of Industry and Trade.

He added that the supporting industry of Vietnam can only manufacture a few kinds of simple accessories with low technological content, such as mirrors, glasses and seats, with the participation of about 210 companies.

The domestic automobile market is too small, with 100,000 to 200,000 cars locally assembled annually.

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