Just when we thought we had seen everything on the riveting reality show "The Ministry of Transport's war against the global car industry", the plot has thickened. For new viewers, here is a recap of the story so far: for three years, the Ministry of Finance has been trying by every means to promote parallel imports of new cars, bypassing the importers, to no avail.
In May, the first pioneer emerged, Ayalon Motors Ltd., which announced the launch of parallel import and sales of Ford cars in Israel. At the same time, the government approved a Ministry of Transport proposal to reform licensing, importing, and oversight procedures on motor vehicles and spare parts.
These events were accompanied by a slew of impressive declarations on Minister of Transport Yisrael Katz's Facebook page. His statements include, "The reform will lower the consumer prices of new cars by at least 20%, and slash prices of spare parts." He called on Israelis "not to buy new cars until prices come down." A few days later, at the launch of the parallel imports agency (Ayalon Motors), he wrote, "Ayalon Motors is the proof that if it is possible to give a 25% discount to leasing companies, it is also possible to give discounts to private individuals and still make a profit."
It turns out, however, that someone at Ford Motor Company (NYSE: F) does not like parallel imports. Katz claims that steps have been taken to neutralize the parallel imports agency in Israel, including an order to US and European carmakers not to give it special discounts.
In response, Katz announced that he had ordered the Ministry of Transport director general "to notify Ford that we are initiating a review and hearing, at the end of which a decision is possible to terminate imports of Ford vehicles to Israel, because of the harm to competitiveness and policy decided on by the Israeli government. A letter has already been sent to the company."
Up to this point, everything could be put down to "harmless venting"; in other words, the fighting words were intended for fans, and that the "warning letter" would be accepted with equanimity by Ford as the world turns.
But then it turned out that Katz had no intention of calming matters down. On the contrary: last week, he wrote on his Facebook page, "I am continuing the update about Ford and its iniquities." He said that the Ministry of Transport had summoned three senior US Embassy officials for what he called "a reprimand and warning to make it clear to them that it was unacceptable that an American company, in this case Ford, was trying to prevent competition and to protect exclusive vehicle imports, and that this conduct was unacceptable to us. It contravenes the government decision and our economic world view, which is based on American principles that include competition and equality."
Katz said that Ford was summoned to a hearing because it had tried to block competition, and that it had even admitted that this was its policy. In the same post, he wrote that Ford's conduct vis-à-vis the parallel imports agency "verged on thuggery, and we will not allow it." He added, "We made it clear today to the Americans and warned them - if they are not interested in intervening now, when Ford is violating government principles, they should not approach us and intervene when we ban Ford vehicle imports to Israel."
Although it has been quite a few years since we studied international relations, but to the best of our recollection, summoning officials of a foreign embassy for a "reprimand" is a serious insult to that country, which is usually reserved for major international disputes, such as espionage and military incidents, and is the exclusive province of the Ministry of Foreign Affairs and the prime minister.
It is bad enough if that "reprimand" was made behind closed doors (a suggestion to Katz: if you want to be diplomatic, call it a "clarification"). But to rush off and tell the guys on your Facebook page about "how we'll show them" is simply not done in diplomacy. Even in the case of a friendly great power, this is an act for which a price will be paid.
Bull in the china shop
It turns out that Katz's remarks, which were published immediately and translated into English, echoed in Israeli government corridors. Shortly after the post, a senior Ministry of the Economy official called "Globes", sounding very worried. "There are many ways to settle a trade dispute," he said, "but the Ministry of Transport's conduct in the Ford case is like a bull in a china shop." He added that government teams had been working for years, investing capital and organizing delegations to attract the purchasing power of the US car industry to Israel, and that these efforts had yielding quite a few results.
"Israel exports $800 million worth vehicle spare parts and systems a year. Most are bought by the big carmakers," said the official. "Israel has 150 manufacturers which supply components, modules, production equipment, software, and other products to the vehicle industry. These businesses have thousands of employees."
Ford has a procurements potential of hundreds of millions of dollars a year, and in the past two years it has begun using private consultants to find Israeli companies with strategically important technologies for it. This is on top of its many years of commercial relations and reciprocal procurements with Israeli manufacturers.
In late 2012, Ford's VP R&D visited Israel and was received by top government officials. At the end of the visit, Ford said in a statement that Israel was in the forefront of technology, and that the company planned leveraging Israel's advanced resources and integrating them in its vehicles.
A hidden hand at work
What will happen to Ford's potential procurements in Israel following Katz's threat to ban Ford imports and after his "reprimand" of US Embassy officials? We don’t know, but it is quite reasonable to assume that Ford is not the only carmaker which is wondering about the Ministry of Transport's aggression. No carmaker likes intervention in its affairs, let alone threats of a ban on imports by a country on dubious legal grounds.
It seems that the Americans have their own ways of calming down the Ministry of Transport. It is a fact that two days after Katz's Facebook post about the "reprimand", he quietly removed it. Did a hidden hand intervene behind the scenes to silence the issue, and is this the end of the gripping affair? Or does the Ministry of Transport plan to continue tilting at the foreign windmills of the global motor vehicles industry?
Published by Globes [online], Israel business news - www.globes-online.com - on May 21, 2013
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