Israel’s vehicle sales for April, 19,500 units, have set off alarms both within and beyond the vehicle industry. Many expected April to be a weak month, if only because of the low number of business days in the month due to the Passover holiday, while the massive effort at shifting goods by the entire industry in January and February meant a degree of moderation was bound to follow. Nevertheless, a decline of more than 14% in April 2017 in comparison with April 2016, almost completely wiping out the cumulative rise in deliveries since the beginning of this year, was a warning sign.
Trend changing?
The background conditions that helped the vehicle market to a record 2016 still hold. The shekel is still at a peak against the US dollar and the euro, and the exchange rate against the yen is also favourable for the vehicle importers. To this can be added virtually zero interest rates, and a continued flow of cheap credit from the banks, the vehicle importers, the vehicle leasing firms, and other non-bank players.
The vehicle makers in Europe and the Far East are far from working at full capacity, which means that there is almost unlimited availability of stock in Israel, at least for most o the popular models, and extra flexibility on the part of the manufacturers.
All these factors continue to drive aggressive marketing, with frequent sales campaigns by the importers in recent weeks, following on from the flooding of the market with reduced-price “zero kilometrage” ex-leasing cars, discounted by 11-17%, before haggling, and the launch of aggressively priced new models.
What, then, is the reason for the slowdown, and the 4.1% drop in vehicle sales in January-April 2017, in comparison with the corresponding period of 2016, to 118,182 units? One explanation is the extreme saturation of the second-hand vehicle market. Up to now, the market has found original ways of getting round this problem, such as financing that enables customers to buy a new vehicle without immediately selling their old one. Or substantial gaps between the official second-hand price lists, which have displayed impressive imperviousness to what is happening on the market, and actual prices. These gaps allow trade-in vehicles to continue being sold, at a very small profit margin.
In the end, however, there is a growing blockage in the second-hand pipeline that is reducing demand in the new vehicle market. For the time being the market is in a sort of balance, but it is not showing signs of further growth.
Hyundai rocks market
In fact, if you take out the far-reaching effect on the market of the Hyundai Motor Company group, with the Hyundai and Kia brands, the situation is much less balanced and stable. In Israel, the Korean firm plays on its own playing field with its own rules. In the first third of this year, Kia and Hyundai together delivered 32,628 vehicles, raising their joint market share to 27.4%. The second-placed international group in that period, Volkswagen, with its Volkswagen, Audi, Seat and Skoda brands, sold just 17,000 vehicles, giving it a market share of 14.4%.
There is no doubt that the Korean firm’s dominance is in large part thanks to the exact match between its offering and the Israeli market, for example, an SUV at a segment breaking price, and, since last year, hybrid cars as though tailor-made for the fleet market.
All the same, it still looks as though the success is partly due to pricing tactics, about which much is unknown. The Hyundai Ioniq Hybrid, for example, is a large family car, sophisticated, well-accessorized, and almost certainly costly to develop and produce (lithium batteries, unique vehicle management systems, advanced safety systems). If that were not the case, all vehicle manufacturers would surely be offering such a desirable option.
The official list price of the Ioniq Hybrid in Israel, NIS 136,000, is aggressive enough already. In Holland, this vehicle costs the consumer €29,000 ( about NIS 115,0000) in its Premium version. But on "zero kilometrage" sites in Israel, that is, sites selling off surplus leasing company stock, a new Hyundai Ioniq Hybrid Premium is offered for NIS 119,000, after the leasing company's profit.
A further example: the Kia Sportage Urban, the model that "broke the segment" with a NIS 139,000 price tag. We found it on "zero kilometrage" sites for NIS 125,000, the price of a Suzuki Cross.
If you present these numbers to experienced managers in the European and Japanese vehicle industries, who know a thing or two about production, export and pricing of cars, they will politely tell you that you must be confused. That there's no such thing. In fact, not only is there such a thing, but the Israeli market enjoys almost inexhaustible supply of these vehicles, even though they are at the beginning of their life-cycles with peak demand worldwide.
Chung visits
Another indication of the very special relationship between Hyundai Motor Company and Israel, and maybe a hint of things to come, can be found in the short and secret visit this week by company vice chairman Chung Eui-sun. He is one of the most senior and important figures in South Korean industry and business, and one of the most experienced managers in the country's vehicle industry.
The main aim of the trip was to visit Mobileye to see a demonstration of the company's new generation chip, which, among other things, will drive Hyundai's future automated car. Hyundai sees this car as a strategic project for it, and perhaps for the entire Korean economy.
The vice chairman will, however, also be hosted by at least one of the company's two importers in Israel, and there is no doubt that this represents a step up in the importance of the Israeli market for Kia and Hyundai and for relations with it. This will have very practical importance in a few months' time when Hyundai launches its new Kona compact SUV here, and the equivalent Kia version that will follow.
This means entering one of the hottest market segments in Israel, in which Hyundai has not had a presence in the past. It can be assumed that these models will duly upset pricing in the segment and in the fleet market. Will we see one global manufacturer taking more than a third of the total market? The possibility should not be ruled out, with or without regard to the state of the car market in Israel.
Published by Globes [online], Israel business news - www.globes-online.com - on May 16, 2017
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