The role of the automobile industry

Automobiles use a large number and variety of parts; the number of parts used in a single vehicle is estimated to be in the tens of thousands, and they are manufactured by companies of all sizes. According to the United Nations Industrial Development Organization (UNIDO), automobiles are divided into industrial groups with medium and high technological levels. However, components are produced in a variety of technology lines, ranging from low and intermediate technology (simple plastic molded parts) to complex advanced technology (transmissions, engines). In a country where the automobile industry is developing, it also stimulates the development of different industrial sectors, such as metal, machinery, electronics, chemicals, plastics, and rubber.

On the other hand, when compared to the electronics industry, one of Vietnam's major industries, significant differences can be seen in the structure of the supply chain and other aspects. Since electronic products and components are small, light, and in some cases interchangeable, transportation costs, including airfreight, are not a major burden. Therefore, each manufacturer can build a global supply chain and compare the advantages of each country entering the supply chain. Since Vietnam has strengths in labor cost and land, it is possible to optimize the distribution of labor in the supply chain while maximizing the benefits by locating labor-intensive processes in Vietnam and importing the remaining parts. Conversely, automobiles tend to have many large, space-consuming parts that require high transportation costs, so manufacturers tend to procure locally and form supply chains within the country or surrounding regions. If the market is large enough, automakers will increase the local procurement rate and form a network of domestic suppliers.

The development of the automobile industry can be said to contribute to the development of various industrial sectors and the development of supporting industrial firms through the entry into the suppy chain of major manufacturers. Thus, the automobile industry is one of the industries that have a significant impact on the process of industrialization and modernization of the national economy.

However, compared to the electronics industry, which is one of Vietnam's major industries, there are significant differences in the supply chain's structure and other aspects. Electronics products and components are small, light, and often interchangeable, allowing each manufacturer to build a global supply chain and compare the advantages of each country entering the supply chain. Vietnam's strengths in labor cost and land make it possible to optimize the distribution of labor in the supply chain while maximizing the benefits by locating labor-intensive processes in Vietnam and importing the remaining parts. On the other hand, automobiles have many large, space-consuming parts that require high transportation costs, leading manufacturers to procure locally and form supply chains within the country or surrounding regions.

Nonetheless, the automobile industry's development contributes to the growth of various industrial sectors and supporting firms through the entry of major manufacturers into the supply chain. Thus, the automobile industry is a significant driver of the industrialization and modernization processes of the national economy.

A breakthrough in the 2022 market

From 2010 to 2014, car sales in Vietnam averaged only 120,000 to 150,000 units per year. Major market shares were held by Japanese and Korean brands such as Toyota, Mazda, and Kia. However, from 2015 to 2020, sales jumped to 300,000 units per year. Automobiles produced and assembled domestically were favored by consumers, reaching an annual growth rate of 15-20%. At the time, many experts said Vietnam had to solve the challenge of market size. Only when sales reach at least 500,000 units per year and some brands capable of selling 30,000 units per year emerge will Vietnam finally have a real opportunity to become a large automobile market in Southeast Asia.

Looking around at neighboring countries, when the domestic market was still small, Thailand and Indonesia succeeded in turning the tide by developing strategic car models to expand the market size, create supply chains, and develop domestic supporting industries. In Vietnam, however, strategic car models were discussed in the process of developing industrial development strategies, but no decision was reached. Thus, in Vietnam, the domestic market was still immature and there was no policy for the development of strategic car models, so the market was divided into small segments among different car models.

The new Corona virus disrupted supply chains in all production sectors around the world and had a serious impact, especially on the automobile industry due to the complexity and diversity of supply chains, and the Vietnam's automobile industry could not avoid this impact due to its immaturity. To limit the risk of impacts such as the new Corona virus, major manufacturers were forced to restructure their supply chains to be more flexible, sustainable, and more durable. Thanks to this, Vietnam's automobile industry showed signs of recovery, and the results for the industry's performance in 2022 are hopeful. According to data released by the Vietnam Automobile Manufacturers Association (VAMA), TC Group, and  VinFast, the total number of cars sold across Vietnam reached over 510,000, the highest number ever recorded. With the market size bottleneck that has existed for many years now resolved, Vietnam has taken the "first step" toward becoming Southeast Asia's largest auto market, and is gradually closing the gap with developed countries in the auto industry such as Indonesia, Thailand, and Malaysia.

(To be continued)