The car market is also waiting for the new government: What will happen in 2020?

The 2019 sales figures are reminiscent of last year: four brands dominate half the industry. Will 2020 look the same (uncertain), how will the industry be affected by the deficit, and why not get too excited about the electric vehicle?

Last week, the aggregate sales figures for the automotive market were published in January through November. The results can be summed up in one sentence - nothing new under the sun. November sales were low as expected and overall data from January to November were single percent lower than in 2018.

The distribution in the market is also similar to last year, and is characterized by exceptional concentration of brands, as last year. Over 40% of sales in 2019 were concentrated in just three brands - Hyundai, Toyota and Kia - two of which belong to the same Korean manufacturer. If you add the Skoda, which is in fourth place, you find that about 50% of the market was held by only four brands.

As in 2018, the remaining half also faced 30 different car brands in dense and aggressive competition. Also this year's motto of the market was if you do not have hybrid models (around 30% of sales in Israel) and / or competitive highway-area models (around 60%), you are in trouble. It is no coincidence that the top three brands are also the only ones that have popular hybrid models.

Have you decided to find parity this year? Just don't do these things

Dense and aggressive competition (Photo: Keenan Cohen)

GAC cars (Photo: Keenan Cohen, Keenan Cohen)

The optimistic scenario: Continued momentum

With such a seemingly stable record, the prediction for 2020 should have been simple: whatever it was. But in practice next year is going to be very challenging to predict mainly due to external, regulatory and economic variables and due to changes in the automotive industry. Our outlook is divided into two main scenarios.

The first, and optimistic, scenario is business as usual. Currently, there are no proper and available public transport alternatives in Israel, which maintains a rigid demand for private vehicles. Currency exchange rates of automotive imports - especially the euro - are falling to historic lows, financing is cheap and available to all, fuel prices continue to maintain a moderate and stable level, the leasing market maintains equilibrium and the "zero miles" market continues to generate enticing opportunities. The massive backlog of importers indicates a strong opening, as for most of the past decade, with about 60-65,000 car deliveries in January-February 2020.

Many in the industry are expecting and hoping that reducing the hybrid car tax on January will significantly price them and balance the demand picture for standard models. Our advice: Don't build on that.

As we have written before, hybrids are the largest market segment in the Israeli automobile market and margins are directly related not only to taxation but also to the importers' sales performance with their manufacturers. Therefore, it appears that hybrid importers would prefer to give up some of the profitability in order to maintain competitive prices and leading market share, with or without the assistance of the manufacturer.

The bottom line is that the rise in prices for hybrids will be less dramatic than expected and so will the reductions in leasing companies. All of this even before we mentioned the massive inventory, which will be exempt from customs duty in the old tax until the end of December and will meet the demand for hybrids at least in the first two quarters. Also note that the value of use of hybrids has been extended over the last few days to the end of 2021 so that the vehicle fleet, which is the largest hybrid of the hybrids, does not currently have the motivation to change the demand mix for regular gasoline / diesel models.

As there are currently no popular hybrid models (NIS 135-140,000) on the horizon for competing brands, the only thing that could threaten next year's hegemony of the trio of leading brands in 2019 is precisely the success. The EU's initiative to reduce the average emissions of all European car models by 2021 is already significantly increasing Europe's demand for green models, and Israel is not one of the manufacturers' priorities.

Conversely, the entire automotive industry currently allocates production resources to benefit future electric or rechargeable models at the expense of the production capacity of normal gasoline / diesel models. Skoda's CEO has been interviewed overseas in recent days, saying the company is expected to suffer a significant shortage of production capacity next year. Will supply difficulties be a minor blow to the hybrid wing or a 40,000-foot-high crash? We'll have to wait and see.

One recent process, which will intensify in our estimation in 2020, is a transverse rise in the prices of many key models as a result of the pressure that manufacturers are facing. The trend is already evident in brands that in the past have shown a willingness to adapt to the Israeli market. The relatively high price level at which Mazda's new models are launched today is just one example. It is quite clear that if the Euro and the dollar against the shekel return to normal, which is about 5% to 10% of the existing level, the crawl may become a run.

The only exceptions would be long-standing and relatively polluting models, whose demand and supply in Europe is expected to shrink significantly in 2020 as a result of emissions regulation. In such models, one can expect price reductions and aggressive promotions, but this will be a definitive phenomenon, which will disappear after achieving a logistical balance of manufacturers.

The hybrids will not threaten the top brands

Audi's 2020 models (Photo: Manufacturer, Manufacturer Website)

In our estimation, the luxury segment will continue to erode, at least for regular importers, due to reduced tax benefits for hybrid models, which have captured almost 50% of the market in the last two years, and due to the accelerated rise in the tiny / indirect import market, whose sales figures are not reported.
The pessimistic scenario: no budget, no sales

The second scenario, which many in the industry prefer to repress, is the continued political and economic instability into 2020, which will directly affect the car market. In an enclosed article, we note that the key economic indicators indicate that continued lack of governance is already adversely affecting the entire economy and private consumption in particular due to a lack of an orderly budget, freezing of new public projects, delays in payments on contracts and paralysis in decision-making mechanisms.

The major exception is the auto market, but even here, steady demand in 2019 was largely driven by aggressive Treasury taxation, led by several months' earlier announcement of plans to make two separate rounds of green tax changes, in April and January 2020. This created panic of sales and the introduction of imports. And billions of car freight billions - which artificially boosted GDP.

So, in the short term, the state managed to squeeze a few more drops this year from the limiting taxation of the automotive sector and prevented Israel's international rating down, but surely 2019 moves will come at the expense of reducing demand and sales, even before the expected full deficit data is revealed. And the presentation of the deficit reduction basket, which the Treasury holds in preparation for the new budget, if and when it is published.

As far as we know, at this moment, the same basket of measures announced by the Budget Department is not expected to have a significant impact on vehicle taxation. The main move, a levied tax, is only scheduled to take effect in two years, which will doubtless affect the car market as early as 2020.

Of course, there may be unexpected taxation steps, given the depth of the budget pit. Although the sales tax in Israel is already among the highest in the world and so is the taxation of fuel, these are still reliable and reliable sources of tax revenue squeeze, which can provide an emergency solution for filling a dry coffers. The Treasury knows full well that the driver's public, which submits 65% of every liter of tax, will not be on the streets about 75%.

Here surely the eager readers will ask and what about the trams? It is hard to ignore the announcements in Israel and the world about an oncoming wave of electric cars from Europe, China and Japan, some of which have already landed in Israel and some will land here from the first quarter.

We also do not forget for a moment the Tesla effect, which is already flooding the issue of electric vehicles to an important place in public discourse and on social networks, culminating in the approaching landing of the American brand in the country.

But in the end, media noise does not necessarily translate into car sales in Israel (according to Better Place), and by 2020 the most optimistic scenario will be 1,200-1,500 new electric cars on the country's roads. Unlike Norway, for example, where a series of vigorous regulatory measures and government tax benefits Leading the Electric Market Market by Nearly 50%, in Israel, the Regulator Sits with the Finger Button Exterminator Button and It's Right to Eliminate If and When Its Success Threats State Income Taxes, however, Tesla's entry could certainly shake traditional marketing practices and drive a massive push toward online marketing Bottom line, don't get jealous of someone who needs to make a shi work plan Walk Car in 2020. Casino gambling looks safer.