Smuggled tires hurt Goodyear's business

Rendi A. Witular, The Jakarta Post, Jakarta

PT Goodyear Indonesia, a local unit of U.S. tire producer Goodyear Tire & Rubber Co., said its business in the country had been hurt by a growing influx of cheap tires from China, which it claimed was smuggled into the country or was undervalued while clearing customs.

Goodyear president Zakariah Ahmad said on Thursday that Chinese tires had not only undermined Goodyear's sales, but also the country's tire industry, which had already been burdened with rising raw material prices and utility costs.

"China is flooding the market with tires, which are cheap but of low quality. We cannot compete with them. The situation will worsen unless the government takes immediate action to address the problem," said Zakariah.

The tires can be sold at a low price here because they have been smuggled into the country or because importers undervalued them during customs clearance. Smugglers evade import duties and other taxes, while importers that undervalue products pay lower duties and are thus able to sell them cheaply.

Goodyear corporate secretary Maju Tarigan said Chinese tires had mostly impacted its sales in the commercial segment, which comprises tires for trucks, buses and heavy vehicles.

"Smuggled tires have been flooding the local market since last year, and their volume has been increasing recently," he said.

Maju explained that the company, through the country's tire association, had reported the problem to the Ministry of Trade and Industry.

The government has launched numerous efforts to curb smuggling and undervaluation over the past three years, but these have yet to produce any concrete results.

Many blame the rampant smuggling and undervaluation on collusion between smugglers or crooked importers and customs officials.

Partly due to the impact of smuggled tires, Goodyear's sales last year remained static -- the company only sold 2.3 million tires, up by a mere 2 percent to 3 percent from 2002.

The company declined to disclose its sales and net profit estimates for 2003.

In the first nine months of 2003, the company's net sales increased slightly to 439 billion (US$52 million), from Rp 426 billion over the same period in 2002, with an operating profit of Rp 26.1 billion, up from 24.5 billion.

The company's nine-month net profit in 2003 increased to Rp 17.9 billion, from 15.1 billion a year ago.

Zakariah said that to boost sales, Goodyear planned to boost production and exports. Exports are expected to expand to 50 percent of the company's total output, from 43.5 percent at present.

He explained that the company was in the midst of negotiating with buyers in North America, Europe and China.

Zakariah declined to reveal the sales target for 2004.

The country's tire industry, which has an installed capacity of 37 million tires per year, is facing surplus stock, as local demand is at 22 million tires per year.