The last paragraph in a report by Shaldor Strategic Consulting Ltd. on the competition in the car industry, commissioned by the Ministry of Finance in early 2012 explains why the report never saw the light of day, and was not even seen by the Knesset Economic Affairs Committee.
"In terms of competitiveness in the new cars segment, no material flaws were found in competition between the different importers, although competition is directly affected by the dominance of the leasing companies. Prices of new cars in Israel are high, mainly because of the substantial tax component, but if the tax component is discounted, price levels do not greatly deviate from prevailing levels in the world, and are even lower in some cases," states Shaldor.
The conclusion destroys the pet theory of the Ministry of Transport and Minister of Transport Yisrael Katz, which underpins his "competition reform" - that market failure in the car import market requires regulatory intervention. Moreover, the study reveals the true reason for Israel's extraordinarily high car prices and why a car costs almost 11% of a household's regular expenses - taxes.
It is no wonder that the Ministry of Finance and the Ministry of Transport rushed to bury the report in the depths of their deepest safes.
Shaldor carried out its study on Israel's car market in February-August 2012 for the inter-ministerial committee to review competition in the car sector. It examined all segments of the market - new car sales, used car sales, garages, leasing companies, and insurance. The report was partly based on data that is not public knowledge, such as the financial reports of leasing companies, importers of cars and spare parts, and it also compared the Israeli car market with corresponding markets in other countries. Shaldor submitted the report to the Ministry of Finance and the Ministry of Transport in September.
Shaldor's study contradicts Katz's oft-repeated claims about "price fixing" in the car market and importers' excess profits, which he says he wants "to transfer from the importers' pockets to the customers," as he told the Knesset last week.
Shaldor concludes, "There is a dynamic in the new car market which has strengthened in recent months, and is reflected in sales campaigns and discounts, and in substantial changes in price lists. Among the dominant models at the leasing companies (especially in the family car category), the changes in the price lists are recognized after a lag, because of the consequences on the value of assets of the leasing companies, which are the dominant customers for the importers. In addition, as a result of the abolishing of the tax brackets mechanism, variability in price levels between different brands in the family car category has begun, and competition for the private consumer category has been created, reflected in sales campaigns and big discounts."
Shaldor goes on to say, "Concentration of brands and importers in Israel is similar to international norms (compared with companies and independent importers). There is high dominance in the market shares of the leading importers. In addition, a comparison with the aggregate profitability of distributors and dealers in other countries found no extraordinary profitability among importers in Israel. In line with prevailing patterns in other countries, Israel has a single direct importer for each brand. The parallel import model is marginal in other countries, and only has a material effect on the market for the import of used cars. Personal imports, which are mainly for high-end cars, are characterized by problematic conduct and difficulties in enforcement in tax, standards, and licensing aspects."
Shaldor concludes that the profit margins of Israel's car sector - 15-25% of the importer's price - do not deviate from prevailing levels in the world, and parallel imports is nothing more than a means of importing used cars. These conclusions are reflected in Shaldor's recommendations not to split up the franchises of importers which import several brands with a large market share, and not to break up the cross-ownership of leasing companies and importers.
Comparison of taxes on cars
- Israel: VAT - 16% (before the hike to 17% in mid-2012); minimum/maximum purchase tax - 10-83%, based on pollution levels. Weighted level is 60%.
- Austria: VAT - 20%; minimum/maximum purchase tax - 0-16%%, based on fuel consumption.
- Denmark: VAT - 15%; minimum/maximum purchase tax - 105-180%.
- Finland: VAT - 22%; minimum/maximum purchase tax - 12.2-48.8%, based on price and emissions.
- France: VAT - 19.6%; minimum/maximum purchase tax - €200-2,600, based on carbon dioxide emissions.
- Germany: VAT - 10%; minimum/maximum purchase tax - 0%.
- Greece: VAT - 21%; minimum/maximum purchase tax - 5-50%, based on engine size and emissions.
- Ireland: VAT - 21%; minimum/maximum purchase tax - 14-36%, based on emissions.
- Italy: VAT - 20%; minimum/maximum purchase tax - €300.
- Spain: VAT - 18%; minimum/maximum purchase tax - 0-14.75% (0% tax on carbon dioxide emissions of up to 120 grams per kilometer and 14.75% on emissions over 200 grams per kilometer)
- UK: VAT - 17.5%; minimum/maximum purchase tax - 0%.
Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2013
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