Between the mall and the queue in the National Bank of Israel, it’s not certain that everyone still remembers that not so long ago a virus with the strange name COVID19 managed to shake the world, and even quite strongly. Much has been said and written regarding its long-term effects on health, the mind and human habits, but very little about the impact that will have A little spoiler before we continue: in everything that concerns the transportation section, the corona virus, and alongside it global events that occurred after it, will continue to cost us a lot of money and probably for several good years to come.
Let’s start at the beginning. The corona virus caught the car industry – like the rest of the world – off guard. A large part of the manufacturers did not have parts in stock, the chip crisis revealed a severe weak point of the industry and to all this were added severe problems in the supply chains and maritime traffic. The result was a sharp reduction in production volumes. And here comes a surprising twist in the plot: fewer cars left the factories but the manufacturers made more money. much more. The year 2021 was a historic record year in the overall profit of the industry and there were even manufacturers who reported a doubling or close to it in revenue. There are many sociological and economic reasons for this jump, but without digging, we will briefly say that production has indeed decreased, but demand remains firm. This means that the manufacturers are not “stuck” with stocks that need to be sold at any price and/or with periodic discounts that in practice greatly reduce the “list price” of the car. about
One way or another, 2021 taught – or perhaps we should say reminded – the automotive industry a lesson in economics that says you can produce less, sell more and earn much more. Since then, there have been other global events of great significance to the automobile industry – the war in Ukraine, an outbreak of inflation in the USA, the beginning of an energy crisis in Europe, and more. With a fairly high degree of certainty, we can say that all of these guarantee that the situation is not going to change fundamentally soon – not in terms of production volumes and certainly not in everything to a drop in prices (but probably the other way around).
In any case, the reminder regarding “produce less to earn more”, did not stay only with the manufacturers and quickly spread to other derivatives of the industry. Car parts for example. There is not much centralized data on the prices of parts in the world, but the Federal Bureau of Statistics in the USA manages an index that gives a good indication. In 2021, according to this index, the prices of spare parts there increased by 10.89% (twice compared to inflation in the USA which was 4.7%), After about a decade in which they did not rise at all. And this is just a small trailer for 2022, for which there is currently no data, but the estimates speak of an even bigger jump due, among other things, to the war in Ukraine and the inflation in the US that we mentioned earlier. In parentheses, we remind you that all these numbers refer to the highly competitive American market in the field. And now try to imagine – without getting a chill – What happened in this field in Israel, where the import of spare parts is regulatory suffocated and plagued by anachronistic taxes.
Rent in the sky
There will be those who rightly claim that the parts industry suffers from the same problems as the car manufacturers – supply chains, chips, etc. – and that is why the increases were recorded there as well. By and large this is true but let’s jump from there to the car rental industry which produces nothing but has become more expensive at an unimaginable rate. Some? From our information, the Federal Bureau of Statistics reports an increase of more than 33% in car rental prices in the United States between 2019 and 2021. There is no government data in Europe, but an independent test in Great Britain, carried out by a consumer association, put it at a price of almost 100% in the rental price of a “mid-size” between 2019 and 2022. Another test, also conducted in Great Britain, examined the issue at five different points in Europe and at several rental companies. The average increase according to the same test was about 40%. The HM compared the price he paid last summer for renting a car in Italy for a week with the current asking price for the same car in the same company. The result: from 820 euros in the summer of 2021 to 1700 euros now.
Why was this jump recorded? Good question. The rental companies have indeed greatly reduced the number of their vehicles during the periods of global closures, and there is no doubt that they are paying a higher price for the new cars purchased since then. But with all due respect – and even if you add inflation – this can explain 10-15% increases in the price, not its doubling. Another claim of the rental companies was that they still lack cars to meet the great demand. If it wasn’t so expensive it would be funny: a test we did in several European countries raised prices sky high but none of the rental companies tested said there were no cars available. And you know what? Even if the demand is sky high and there are no cars, is the level of return reflected in these increases reasonable?
And here I go back to where we started. There may be many real reasons for the price increases, but it’s hard to escape the feeling that at the end of the day, all the players in the field are allowing themselves to go wild while hiding behind the excuse “it’s the crisis, not us”. It can be estimated that in the end – in a very competitive and decentralized market – some of the players will blink and things will return to normal. But it should be taken into account that, against the background of the global events mentioned earlier, this could take another considerable period, and this is also assuming that there will be no new crises. So until then try not to get too upset and especially don’t agree to pay any price they ask of you. Drive carefully.