2024-04-01 03:25:49
The Israeli automotive industry would prefer to forget the first quarter of 2024. According to preliminary estimates, between the beginning of January and the end of March, approximately 84,000 deliveries were made – the weakest figure for this quarter after more than a decade (excluding the Corona quarter). The figures could have been even lower if it weren’t for particularly vigilant purchases by the leasing companies, which absorbed surpluses of aging vehicles.
Economic and consumer logic says that in such a low market “the private customer is king”, and there must be strong pressure to lower prices. This has not happened, for the time being, due to several reasons, but if the problematic background conditions continue, it is likely that in the second quarter the beginning of a change will begin.
Sales are down, but prices are near record highs
As of today, the prices of new vehicles are still very close to a record level. The average price for a new car purchase transaction, at official price list prices, hovered around NIS 200,000 in the first quarter – the same as at the end of 2022 and almost 20% more than the average price in 2019. This, even though the car industry has already forgotten about the chip crisis, which disrupted car supply between 2022 and the beginning of 2023 and caused excess demand and price increases. And although the prices of raw materials for the automotive industry have long since dropped from the abnormal levels they climbed to that year. And even though sea freight prices have dropped dramatically from their peak.
It is true that at the beginning of the quarter, sea freight prices on routes from the East climbed again due to the Houthi attacks in the Red Sea and longer routes that the shipping companies had to adopt. But this is a localized effect, which has started to moderate in recent weeks, and in any case it only affects some of the vehicles.
There are car manufacturers who tried to extend the “crisis atmosphere”, which was very profitable for them after the corona. But in the last few months they too have surrendered to market forces and are lowering prices. China is currently in the midst of a fierce price war in the automobile market, while in the United States the unsold inventories have soared, and the manufacturers’ discounts in March were also about 66% higher than they were in the same month last year. This is a clear indication that the market is returning to the “normal” state of excess supply.
The industry provides several explanations for the average price not falling, such as “a technical change in the mix of purchases”. That is, in the last year and especially in the first quarter of 2024, the sales rate of electric vehicles in Israel jumped to almost a fifth of all sales. Because electric vehicles are more expensive than gasoline vehicles, especially after the series of sales tax increases on them, they “pull up” the average price. The industry notes that the hybrid vehicles, which take up a significant share of sales, lost their tax benefit two years ago and their price has increased. In addition, car manufacturers are currently producing fewer small and cheap vehicles, for reasons of profitability.
There is no doubt that the increase in taxation on electric vehicles from 10% to 35% within two years contributed not a little to the increase in the price of electric vehicles. But in most developed markets, which are not related to taxation in Israel, a moderation in the prices of electric vehicles is still felt, partly due to the drop in battery prices. Despite this, the trend of discounting the trams has not yet reached us.
Another explanation that is prevalent in the industry is that the price increase stems from the weakening of the shekel relative to the main car import currencies, the dollar and the euro, which began at the beginning of 2023 and accelerated with the start of the war. The industry claims that a significant part of the stocks, which are currently for sale, were purchased at high exchange rates. The weakening of the shekel in relation to the dollar and the euro did make vehicle purchases more expensive and eroded the profitability of importers, but in recent months the shekel has made a “rebound” compared to the low it reached in early October. That is, there is an effect, but not a dramatic one.
Discounts are few and limited, for now
Many in the industry claim that the list prices do not reflect the average price of the actual transactions, after the specials and discounts for individuals and merchants.
The validity of this argument is quite easy to check. The amount of sales promotions by car importers in March was significantly lower compared to normal years, and most of the promotions focused on “full cleaning” of excess 2023 models, or on less “demanded” models. A larger selection of popular models, which are sold at a discount, can be found today on the “zero kilometer” sites, through which the leasing companies sell surplus stock purchased from the manufacturers.
However, a detailed examination of the prices on the websites reveals that on “demanded” models, especially recreational vehicles and hybrid models, the typical rate of discounts varies between 6%-9% only. These are significantly lower discounts compared to previous years, and on normal days a particularly stubborn customer can also receive them in the showroom at the time of purchase.
The dilemma: buy or wait?
The big question is whether the trend will change in the second quarter. The answer varies depending on the segment. As far as electric vehicles are concerned, it seems that currently the motivation of marketers to give significant discounts is low. This is despite the fact that at least some of them have significant stocks from the end of 2023.
The “credit” for this goes to the Treasury, which drew up a “road map” for the automotive industry for raising the purchase tax on electric vehicles in the next three years, starting in January 2025. The meaning of the road map is that every electric vehicle that will be in the inventory of importers and leasing companies towards the end of 2024 will increase in value . This is a message that car dealers know how to read and translate into profitability. Furthermore, the Ministry of Finance extended the period of time in which an importer can keep a vehicle imported to Israel without being obliged to register it in his name from 12 months to 15 months – which also reduces the motivation to discount. Therefore, there may be spot sales on aging electric models in the next two quarters, but they will taper off towards the end of the year.
We note that all the vehicles manufactured in China, Korea and Japan are currently suffering from supply disruptions due to the crisis in the Red Sea, which is extending sea transportation times and reducing inventories. As a result, there is already a shortage of key models, especially gasoline and hybrid vehicles, and this situation reduces the motivation to discount.
On the other hand, models manufactured in Europe and the USA, including models from Japanese and Korean manufacturers such as the Toyota Corolla, Hyundai Tucson, Kia Sportage and more – do not suffer from the same problem. So they are affected by the pressure to discount.
But in the bottom line it all depends on the background conditions. If they get worse, it is possible that the “price wall” will crack and we will start to see a wave of price reductions, or at least indirect discounts through the “zero kilometer” channel of the leasing companies.
Bottom line, the usual consumer recommendations are truer today than ever: check the supply carefully, don’t “lock in” to one model, don’t be shy to bargain, take into account the effect of future regulation on prices and don’t rush if you don’t have to. Sometimes sitting on the fence can save a lot.
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