With 25,223 new cars delivered in June, a record 164,284 cars were delivered in Israel in the first half of 2016. Ten years ago 147,000 new cars were delivered in the entire year. No slowdown is expected to occur in the next two-three months and some car importers currently have a large order backlog following large-scale sales promotions in May and June.
Moreover, strategically important models are expected to arrive in market in the next two months, such as the Toyota Corolla family car, the production of which was put 'on ice' in Turkey in preparation for renewed model production in July. The Corolla is an important model for both private and business customers, with a monthly sales rate of about 1,200 cars. It can be assumed that due to its non-availability, order backlog until the end of 2016 will reach over 5,000 units. Car importer optimism regarding market conditions later this year is further manifested in the substantial concentration of cars in storage lots and sea ports. This is not a dramatic phenomenon: the number of cars already unloaded in Israel is estimated at 60,000-70,000, numbers already seen in the past (mainly in the ports of Eilat and Ashdod). Considering the average monthly sales rate this year, this is a reasonable stock for 3 months, rather than a preparation for any contingency.
In January 2017, the "green taxation" update is to come into effect, leading to an increase in car taxation. While a significant leap in car imports can be expected towards November-December, as was the case two years ago, this import boom has not started so far.
A bubble or organic growth?
Adapting a wider perspective might require an examination of the reasons underlying 2016 first quarter sales data. Is this a healthy, organic growth, or a sales bubble which, upon bursting, will return the market to its natural proportions (in a natural or a rapid, violent manner)?
All data currently suggests that this is a bubble. Israel's population did not double, and the standard of living certainly did not increase so dramatically since 2006, when less than 150,000 new cars were delivered (with similar numbers in 2005). On the contrary, the cost-of-living index indicates that more salaries are required to buy a new family car, compared with a decade ago, due to the rise in family car prices.
Certainly, today it is possible to buy a new city car for only NIS 60,000-70,000, which was not possible a decade ago, but this is a still a 'niche', amounting to only 10% of the market. In fact, the average price of new cars being purchased in Israel slowly rises (at least according to official car price lists), while the customers and the market gradually shift towards small jeeps and SUVs.
This bubble should have been moderated by several balancing factors, but it seems that forces causing the bubble to grow are stronger. For example, the significant deterioration in traffic congestion should have encouraged potential buyers to turn to public transportation, specifically people living in the greater Tel Aviv area. However, the inadequacy of public transportation and its inability to meet the needs of employees from outlying areas working in Tel Aviv and of people whose leisure activity occurs mainly during the weekend, neutralizes the balancing effect of traffic jams.
This trend is further supplemented by the relatively comfortable fuel prices, certainly compared with the prices of public transportation, as well as the encouragement provided by employees (for example, free gasoline) to use private vehicles as the key means of arriving at work and returning. An interim balance: traffic jams 1; convenience, lack of alternatives and price 3.
Published by Globes [online], Israel business news - www.globes-online.com - on July 5, 2016
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