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Israeli aftermarket is small, but poised to grow

Thursday, April 20, 2017 - 07:00
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There are few nations that have as close a relationship with the United States as Israel. However, political alliances don’t necessarily translate into aftermarket sales opportunities for automotive parts and accessories.

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Israel, a relatively small automotive market compared to others in the region, isn’t particularly friendly to U.S. automotive exports. The exception to this might be in the military and para-military sector. So, while there are limited opportunities to export, the Israeli aftermarket itself isn’t very large.

Israel is slightly larger than New Jersey in size, but it’s population, at approximately 8 million people, is slightly less than the Garden State’s. The population demographics skew a bit younger, with 81 percent of the population being 55 and under. And with a life expectancy of 82.4 years, Israel rank eleventh in the world in the longevity of its residents. (The U.S. ranks 42nd).

Israel’s gross domestic product (GDP) of $300 billion in 2016 was good enough to land 57th in the world, placing it just ahead of Greece, Hungary and Denmark. It’s 2016 economic growth rate of 2.8 percent improved from the year earlier 2.5 percent. The Israeli economy is driven by its high tech and bio-medical research industries. Tourism and agriculture are also vital parts of the Israeli economy.

The Israeli automotive market is rather robust. The 10-year compounded annual growth rate (CAGR) has been 5.2 percent. That slightly lags the Middle East region which saw a CAGR of 7.1 percent. Sales in 2016 grew 12.5 percent from 2015, exceeding all expectations.

The market, as of 2015, stood at nearly 3 million vehicles in operation. The fastest growing segment, according to Israeli government statistics, is private passenger vehicles, which increased by nearly 1 million units from 10 years earlier. Private passenger cars represent 83.6 percent of the total vehicle parc. The balance of the market is split amongst trucks (10.4 percent), motorcycles (4.1 percent). Buses, taxis and specialty vehicles make up the remainder.

Israel has an incredibly diverse vehicle population, with 46 different brands and 301 different models sold in 2016. There are, of course, a few perennial market leaders.

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Asian brands have dominated the auto industry in Israel for many years, and 2016 was no exception. The 286,700 units sold in 2016 marked an incredible sales result, and for the market leaders, Hyundai and Kia, this has translated into a 27 percent combined market share. Toyota (10.5 percent), once a market leader, is now the perennial third-place finisher. Skoda (6.8 percent) and Mitsubishi (5.0 percent) round out the top five brands. The top 13 brands, out of the 46 brands sold in Israel, comprised 80 percent market share in 2016.

The car sales market in Israel is highly regulated by the government. There are only five companies that have the necessary licenses to import new vehicles into the country. Additionally, four different companies specialize in vehicle leasing. In these cases, leasing companies obtain cars from the five authorized importers at steep discounts and lease them to consumers. In some cases, the leasing companies themselves are controlled by the vehicle importers. These “families,” as they are known, are wealthy and powerful. Over the years, there have been many mergers and cooperation agreements amongst the importers, and as such “free open markets” as one Israeli described it, are ever shrinking. The “families” are often said to have high level connections within the government as well.

The Israeli aftermarket, according to Yigal Ezra of Auto Line Ltd., an Israeli importer of spare parts, has been stable on both the OEM and aftermarket front for the past five years. He said the market itself is not a brand driven one, but rather it is driven mostly by price.

Ezra said that big parts distributors, affiliated with buying groups, “use their private brand names for fast-moving items imported from China.” American made parts would probably fare better, but only if the price is comparable to the parts made in China.

That sentiment is echoed by others as well.

“Due to the massive import of spare parts and accessories from China (including American brands who today manufacture in China with a made in China label), I feel that people are fed up with [subpar] Chinese made items, and they are willing to shell out some more for real American made spare parts,” says Itzik Alon, managing director of Jeepland Ltd., an importer of Jeep and Land Rover parts. Like others interviewed for this article, Alon reiterated that “the bottom-line price is still a crucial factor in this part of the world, which prevents high-quality items from selling in the market due to low-cost Chinese products.”

Given the realities of the market, Ezra of Auto Line said that “with production moving to China, it is very rare to find U.S.-made parts (in Israel). However, we can assume that they would be preferred over China-made parts.” 

All indications point to the fact that Israeli consumers are far less “brand driven,” especially when it comes to commodity type items, than they are “value driven.” They will pay more if they perceive they are getting better quality and value for their money.

That ‘value driven” philosophy extends to cars as well. Jeepland’s Alon said that the reason American car brands haven’t done well in Israel is because consumers feel they aren’t getting fair value for their money. As an example, he cited that most Chevrolets sold in Israel are models manufactured in Korea.

“People would rather just buy a well-known Korean brand, such as Kia and Hyundai, instead of paying extra for an American brand made in the same place,” Alon said. “People are inclined to purchase other fancy European and Japanese cars such as Mercedes, BMW and Lexus.”

Perhaps an overlooked area of opportunity does exist for American exporters. According to Alon, “there is a pretty big community of American cars enthusiasts, but the supply of said cars is relatively small.” A possible source of the problem, he cites, might be that “there are no ‘real’ American cars being made today, apart from Cadillacs (maybe).” 

But for those inclined to drive an American car, there are options. Alon said that while “there is no official import of real American muscle cars, and in case one should want a Dodge Challenger/Charger, Camaro, Corvette, Mustang etc., one will have to import it personally and go through a hard process by the Ministry of Transportation and custom authorities.”

One area that does favor U.S. exporters is spare parts for military applications. As a regional partner for the U.S., Israel receives substantial financial assistance each year to purchase military goods from the United States. As of 2016, this consisted of $33 billion in Foreign Military Financing (FMF) grants. These grants are spent in the U.S. to assist Israel maintain its military readiness. As one of its hallmarks, the readiness of the Israeli military has always been paramount. It requires the military to always have their machinery running at peak performance, and this requires a rigorous maintenance regime. These requirements have helped U.S. exporters sell to Israel’s Ministry of Defense for decades.

The Israeli aftermarket exists and it is poised to grow. Although U.S. exporters currently have only an extremely modest share of the market, there are opportunities that can be developed. With more than 3 million vehicles in private use throughout the country, there will be a strong demand for parts and accessories. Focusing on Asian brands like Hyundai, Kia and Toyota would be a smart move. When asked what would help make U.S.-based exporters more successful in Israel, Alon said “My advice is to have reasonable pricing, have high-quality products and keep high stock levels.”

For those American suppliers who have products that are suitable for military applications, they can contact the Israeli Ministry of Defense (MOD) directly. The MOD maintains a purchasing office in New York from where they manage their purchases in the United States. Their website, www.mission-ny.mod.gov.il, will give manufacturers a detailed list of requirements.


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