Struggling Vietnam Auto Industry Gets Boost from Mercedes

Mercedes Benz has announced its plan to invest 10 million US dollars in Vietnam this year. What does this mean to Vietnam

On the northern edge of Ho Chi Minh City, street vendors sell noodles for 1 US dollars and trash pickers look for cardboard to recycle. Right next to them, some of Vietnam's most exclusive cars are being built.

Mercedes has a factory here, and this month, the company said it will invest 10 million US dollars into its operations in Vietnam.

CEO Michael Behrens says that's one of the company's commitments for 2014. "Commitment number one is investing in Vietnam's future. What does that mean? We will invest 5 million US dollar in the new production, that means the S Class. And we will invest another 5 million in all kinds of things, in the network and in ecology."

Another commitment was to introduce 19 new models to the Vietnamese market this year. Dirk Adelmann, the director of sales and marketing, says this is a strategy to suit a very fast-growing market.

"The average customer age is also much, much younger than in the other countries around. And what we found out is that young Vietnamese, every year, want something new. This is our challenge and this is why we try to improve the car every year."

The news from Mercedes will contribute to the Vietnamese government's broader goal of developing a domestic car industry to compete with Thailand and Indonesia. But Nguyen Van Trung, the editor of Autocar magazine in Vietnam, says the country still needs capital, knowledge, and technology.

"Vietnam started from zero, so Vietnamese need help from foreign brands. Vietnamese want foreign manufacturers to enter Vietnam with capital, with knowledge, with technology. But I don't think that the sharing between the foreign manufacturers with local firms is going fast, I think it's slow."

Critics say Vietnam has not prepared its local suppliers to compete with the region. Locals are protected by import and other taxes that double the price of a car. 

Vietnam may not be ready when those taxes disappear in 2018, as part of an agreement with the ASEAN says Mercedes CEO Michael Behrens.

"The industry in some of the surrounding countries is more developed. But this is not due to the local industry, but this is a question of the support by the Vietnamese government."

Still, Vietnamese will continue to want cars. Vietnam has the fastest-growing consumer market in Southeast Asia, and some see cars as the ultimate status symbol says Nguyen Van Trung from Autocar magazine. 

"Vietnamese are getting richer and they want to spend money. They want to enjoy the life. And some of them want to enjoy state-of-the-art life, too. [State of the art?] Yes. So we have the demand. Because a car, for Vietnamese, is not only a vehicle. It is an asset."