Smuggled tires hurt Goodyear's business

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.