Quite a few Israelis who tried to buy a used car last year and came to one of the big trade-in chains, trading lots and leasing companies soon discovered that they were in trouble: the cars are sold at higher prices than the list price and sometimes significantly.
Naturally, when used cars are sold at a high price then the prices of used cars react accordingly and the prices of used cars go up. Here, of course, the logical question is asked: Why have the prices of used cars gone up? The answer provided by quite a few entities that deal in used car trade is that cars become more expensive due to a shortage of new cars. So far it makes sense: there are no new cars so buyers are used. But here there is a slight problem: this argument of car dealers does not hold water in practice.
When we examine the data on new car deliveries, we find that 2021 was the best in the history of the Israeli car industry since the establishment of the state. Nearly 290,000 new cars were delivered last year, according to data from the Automobile Importers Association. The biggest jumps in sales were recorded by popular car brands. Hyundai has risen 29%. Toyota went up 42%. Kia rose 56%. Skoda recorded a modest 4% increase while Mazda exploded with a 58% jump in its sales.
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The numbers, as they say, do not lie: no one can sell us practicals that sales of new cars have dwindled to drip and therefore the demand for used cars has skyrocketed – which has skyrocketed prices. By the way, the so-called attack on used cars is not unique to Israel: it is difficult to miss the variety of publications about the jump in demand for used cars in the US last year. But there is one significant difference between Israel and the US: An increase of about 3.5% compared to the 2020 data. In contrast, in Israel only about 215,000 cars were delivered in 2020 and in 2021. About 290,000 cars were delivered. You do not have to be an economist to understand that this is not America. Last year, not many Israelis were found who really could not find a new car made of nylon.
However, the demand for used cars has indeed increased. As revealed in “Calcalist” in 2021, the used car market reached almost a million sales deals, an increase of 13% compared to 2020. A 13% increase is very far from being the “onslaught” reported by used dealers, which caused car prices to rise and caused quite a few private sellers To think that they are holding on to a work of art whose value is only rising. But such an increase in the volume of transactions teaches us another important fact: it turns out that in the market of used cars there is no shortage of cars. Otherwise we would have witnessed a decrease in the volume of transactions and not an increase. So what did happen in the used market that caused hysteria and exploitation of the situation by the trade networks?
The first and very simple answer is that there is a vigilant demand in the used car market. The reasons for this demand are “natural”: Israelis still need a car to get from place to place. There is no efficient public transportation and the Corona has pushed many Israelis behind the wheel. But more than that: cars were and still are considered a status symbol in Israel. More and more families in the country are accumulating more cars for the household. That is, the fact that a new car has been ordered in the family does not necessarily indicate that the old car, that is, the two- or three-year-old car will go on sale in the free market. It is quite possible that this car will remain in the same household and be transferred, for example, to one of the children. Thus, some of the cars have already been deducted from the market.
But 2021 was characterized by other elements that created an image of a so-called used market: First of all, the main factor on which the Israeli public relies to obtain information is the prices of used cars, which in turn receive the information from the major retail chains. The big trade networks were “dried up” by the public. From Israelis who do not want to bring the car to the trade-in because they pass the car to children to Israelis who simply did not want to lose the brokerage fees in favor of trade networks, which created an image that there is supposedly a shortage because new cars were not delivered. In practice, new car sales have reached new highs.
Every currency has two sides: When trade-in chains had a hard time getting merchandise, they went on sale. It was very easy to see last year “deals” in which the trade-ins promise customers a full list price for the car. Customers know they can get more out there because of the hysteria, but are convinced. Then the trade-in has to sell the car expensively. This currency has another important side: Trade-In does not operate alone, it operates through a car importer. The car importer grants a trade-in subsidy on the transaction, which means that it finances part of the car’s inventory days and also its purchase transaction. And if the trade-in has to pay a list price to the buyer for the car, he will receive a subsidy that will allow him to continue to hold the car on the lot until it is sold at the target price, ie type of egg and chicken: the importer makes a good profit, the importer pays the trade-in, the trade-in pays dearly And at the end of the trade no one sells expensively without remorse.
And beyond all that, there is another problem. In the leasing and rental industry in Israel, moves were made that to a certain extent “dried up” the market. Today leasing and rental companies are a tongue in cheek when it comes to quite a few models marketed in the used market. If a leasing company decides to release thousands of cars of a certain model into its trade-in system, it creates a risk. If the cars are released to the market, then there is a flood. And if there is a flood, the price of the car goes down in the price list. On the other hand, if the leasing company keeps the cars close to it with the clear knowledge that their price in the price list will go up, and releases them to the market only when they can be sold expensively or intermittently prices them high and waits for buyers to arrive, then the price can only go up.
This speculative behavior has also been adopted by entities that deal in car trading and thus a situation has arisen where stockpiles of used cars have been waiting for sale at the appropriate price. And beyond all this, it is difficult to ignore the unfortunate fact: the used car market in Israel is a market that is driven by interests as well as hysteria. In any case, Israelis do not understand too much about vehicles. They are willing to pay a higher price than the list prices for trade-in chains that provide a useless warranty, they are happy to pay for a purchase from an authorized trader, buying from a neat trade-in and other amusing inventions to the best of their imagination. And when those same traders and agents happily sell practicals about a dehydrated market and a shortage that does not necessarily exist, hysteria is created and Israelis like to believe it. And so a bubble was created last year in the used car market, a bubble fueled by speculation.
Now the question arises: How will the used car market behave this year? The answer at least for the next few months is “the same thing”, meaning sellers will continue to think they have sought-after merchandise and buyers will continue to believe them. But over the next few months there will be some phenomena that will definitely cool the phenomenon. Buyers are not suckers forever. Market forces are doing their thing and the realization that it is impossible to pay high prices for a family car will eventually permeate. Because it is not possible to pay 50 or 60 thousand shekels for a decade-old Japanese car. Beyond that, in January and February a handsome amount of used cars are expected to be released to the market due to vehicle replacements of the large fleets. These cars will go back to leasing companies and there realize that 2021 was the best year of the used car market, but the celebration is over.
The used cars will probably no longer climb in the price lists because this is already a course that simply does not make sense. And beyond that, the main “excuse”, the lack of chips and the lack of cars is no longer really valid. Car importers have learned how to overcome all obstacles and it is true that there is a shortage, but it is difficult to say that it is as severe as could be expected. Now the used market will have to return to a sane state. If buyers have common sense and patience, sanity will return within two to three months. If the market continues to follow the recommendations of selling traders, prices may return to sanity only towards the summer months.
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