Decree 116 and a mounting investment in automobile manufacturing

While imports are falling, a huge wave of investment goes into domestic car manufacturing

The issuance of Decree 116

Three months ago, Decree 116 has tightened controls for imported automobiles in terms of origin, types, technical safety, and environment protection requirements.

The government has confirmed that Decree 116 aims to develop the Vietnamese automobile industry. Besides the tightened regulations and high standards, there are many opportunities for firms to develop the automobile industry, raise localisation rate, and create jobs.

However, there are still many arguments around Decree 116. The tightened regulations, along with Circular No,03/2018/TT-BGTVT which came into effect on January 1, 2018, have set various challenges for automobile importers.

Recently, automobile branches like Toyota and Honda have announced stopping bringing cars to Vietnam because they cannot obtain a Vehicle Type Approval (VTA) certification issued by authorities in the exporting country. Without such a document, a separate certificate of quality, technical safety, and environmental protection of the automobile or engine must be provided.

In addition to this, while examining technical safety and environmental protection, automobile importers will have to submit a number of dossiers, such as the registration certificates of imported cars for technical safety and security, and environmental inspection, certified copies of the types of tires, rearview mirrors, and front lights issued by competent agencies or organisations, and the original certificates of automobile quality inspection issued by foreign automakers or automobile-assembling enterprises for each type of car.

Thereby, the number of completely built units (CBU) in the first months of this year dropped sharply. Up to February 15, 2018, as many as 32 CBU vehicles (under nine seats) were imported to Vietnam with a value of $1.1 million. During the week-long Tet holiday, only one vehicle was imported.

Speaking at the meeting chaired by Minister and Head of the Government Office Mai Tien Dung yesterday, chairman of the Vietnam Automobile Manufacturers’ Association (VAMA) Toru Kinoshita said: “Decree 116 raises costs and time for all auto imports, resulting in higher vehicle prices and longer waiting times for customers. The decree also creates unfair competition among domestic and foreign manufacturers. Some VAMA members have been operating in Vietnam for more than 20 years, but they may stop manufacturing because of an unexpected regulation on road testing.”

Pham Van Dung, chairman and general director of Ford Vietnam, said the regulations in Decree 116 do not follow international practices because exporting countries do not grant VTA certificates for the vehicles.

However, Tran Ba Duong, chairman of Truong Hai Auto Corporation (Thaco), confirmed that this certificate is necessary to protect the environment and the safety of drivers and passengers.

“Decree 116 has created a fair competitive environment between automotive manufacturers and importers. I do not think to delay the enforcement of the decree,” he added.

Le Ngoc Duc, general director of Hyundai Thanh Cong, agreed and stressed: “If the cars produced domestically must pass the test, imported vehicles should also have to.”

New development orientation for automobile industry

Despite the tightened conditions of Decree 116, a wave of investment into the automobile industry has been forming at foreign invested and domestic firms.

Leaders of Mitsubishi Motors have just met with relevant Vietnamese agencies to inform them and discuss their plan of constructing the second automobile factory in Vietnam. The facility would have an investment value of $250 million and capacity of 50,000 vehicles per annum.

It is expected to launch in the middle of 2020 and create 1,000 jobs. Additionally, the corporation also signed a memorandum of understanding with the government on the development of electric automobiles in Vietnam.

Ford also intends to strengthen automobile assembly in Vietnam to be applied zero per cent preferential tax for spare parts, as per Decree 125.

Domestic firms like Truong Hai Auto Corporation (Thaco) kicked off the construction of the new Thaco-Mazda automobile manufacturing factory with the capacity of 100,000 vehicles a year and total investment of VND12 trillion (approximately $530 million).

Earlier, Vingroup has invested $3.5 billion into an automobile manufacturing complex to develop a Vietnamese automobile brand.

Hyundai Thanh Cong not only poured billions dollar into the automobile industry, but also expects to export to the ASEAN.

At the meeting yesterday, Minister Dung said that foreign agencies, associations, and enterprises support Vietnam's policy to develop the automotive industry in order to step-by-step become autonomous and increase the localisation rate through mechanisms and policies.

According to statistics from the General Department of Vietnam Customs, as of February 15, 2018, the import turnover of automobile components hit $332 million as compared to the $387 million of the same period last year. Thereby, domestic production still remains stable.

Against the forecast that the automotive industry will "submerge" after removing the import tax on CBUs from the ASEAN from early 2018, the current production activities still remain and develop.

At the end of 2016, there were 173 firms producing and assembling automobiles with the total capacity of around 500,000 vehicles per year.