COVID-19 affects Vietnam’s automotive industry

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COVID-19 to have huge impact on automotive industry - Illustrative image (Source: VNA)

The spread of the COVID-19 pandemic in almost all countries and territories worldwide is likely to force automobile manufacturing and assembly firms in Vietnam to scale down operations and even close their factories.

In a document assessing the pandemic’s impacts on the Vietnamese automotive industry sent to the Ministries of Industry and Trade, Finance, and Transport, Chairman of the Vietnam Automobile Manufacturers Association (VAMA) Toru Kinoshita said that at present imports of spare parts can still meet production demands.

However, many spare part and vehicle manufacturers will be directly affected by many countries’ decision to lock down one or more areas and even the entire nation to deal with COVID-19.

This will mean many enterprises will have to adjust their production plans, and even consider closing their factories temporarily until an alternative supply is found. As a result, thousands of direct and indirect workers will be laid off, or have their salaries cut, Kinoshita predicted.

The VAMA representative also affirmed that at present, the pandemic has not had any significant impact on production and business activities. However, the possibility that the disease continues could mean whole companies could be isolated to contain the epidemic, posing the risk of businesses shutting down.

At the same time, many automobile manufacturers investing in expanding their factories face difficulties as some of their machinery and equipment cannot be imported into Vietnam. Meanwhile, many foreign engineers, experts and skilled workers are unable to enter Vietnam or are in quarantine.

Some enterprises said that their spare parts inventories are only enough to last a short time because it will take a few months to resume imports. If the disease continues developing and supply is affected, enterprises will be forced to temporarily suspend production and delay their business plans.

In addition, the VAMA Chairman said that the decrease in travel and goods transportation demands will lead to a decline in demand for vehicles.

The number of customers has decreased, resulting in a reduction in the number of new contracts. Therefore, sales on the Vietnamese automotive market in 2020 are forecast to drop by more than 15 percent compared with the previous year.

In terms of services, VAMA said that the number of vehicles using repair services has fallen by 30-40 percent, and is expected to fall by 60-70 percent if the pandemic worsens.

In this context, VAMA proposed the Government consider relaxing and reducing taxes for businesses to help maintain production and stimulate consumption.

It proposed cutting 50 percent of value added tax and 50 percent of registration fees for car buyers, extending the payment of value added tax and special consumption tax for businesses from March to September 2020, suspending the payment of Corporate Income Tax in 2020 to March 31, 2021, and extending the time for paying taxes at import stage in 2020.

The association also suggested the Government study and issue a general stimulus package for economic development, and extend commercial loan packages so that enterprises have time to recover production and business and pay debts.