Free market or protectionism?: Local industry under threat from smuggled tyre

Smuggling needs to be dealt with an iron hand, says the CEO of General Tyre.

KARACHI:

Rampant under-invoicing and the ease with which smuggled tyres make it to the local market are the main concerns of the local tyre industry. And, the easiest way to tackle these issues is to raid tire markets in big cities instead of trying to stop smuggling along the long Pak-Afghan border, so says Chief Executive General Tyre Mohammad Shahid Hussain.

“I can assure you that just a few months of raids on tyre markets will force vendors to stop dealing in smuggled tyres,” Hussain said in an interview with The Express Tribune, “Controlling just the big five cities will greatly hit tyre smuggling.”

The government crackdown on smuggling would save millions of dollars in taxes because it will automatically increase import through legal channels, he said.

The total market in Pakistan is around 6.5 million tyres which is equally divided into three segments. For instance one third of the market is captured by locally manufactured tyres while the rest of the market is equally divided into legally imported tyres and smuggled tyres.

The total capacity of General Tyre and Rubber Company is 2.1 million tyres per annum but the company is running on 80 per cent of its installed capacity. Hussain says the reason for this is the economic slowdown in the country.

“We want to compete with local manufacturers. But we cannot compete with thugs who sell smuggled tyres at a discount of 7 to 9 per cent,” he said.

The sale of tyres is under pressure in Pakistan. Unlike food items, tyres are not essentials, which is why the economic slowdown in last few years has severely reduced the tyre sales in Pakistan, he explained.

The slowdown in last three years has also negatively affected car sales in the country. Naturally being the biggest tyre supplier to car manufacturers, General Tyre saw its sales take a hit. Another reason is that most of the cars in Pakistan are small cars and high inflation directly affects their savings and spending patterns. With squeezing incomes and high inflation, most car owners prefer to continue with old tyres instead of new ones.

In the last budget, the government levied a 16 per cent sales tax on tractors owing to which tractor sales saw a sharp plunge in last four months. This also affected the sales of General Tyre because it is the main supplier to local tractors. Our company was in profit four months ago but today with all these circumstances we face serious financial restraints, Hussain said.

When asked, he said, the top-selling smuggled tyres in Pakistan are Chinese brands while Indian and Iranian tyres are also finding their way into the local markets.

When General Tire USA established General Tyre Pakistan in 1963, the initial production capacity was only 120,000 tyres per annum but today it produces 2,000,000 tyres per annum. The company has also signed technical services agreement (TSA) with Continental AG (Germany’s largest tyre manufacturer) to produce branded tyres.

The company is the major supplier of tyres to the local automotive and tractor assembly plants. It supplies tyres to Toyota, Honda, Pak Suzuki Motor Company, Hino Pak, Ghandhara Industries, Ghandhara Nissan, Al-Ghazi Tractors, Millat Tractors and others.

Husain hopes to see an increase in the company’s hold on the local market. “Although we do export tyres to some neighbouring and Middle East countries we want to increase our share in the local market,” he said.

Published in The Express Tribune, September 12^th,  2011.