Lower car prices

There has been little outrage at this lopsided problem: Israelis make less and yet pay more for cars.

By JPOST EDITORIAL
traffic jam highway 1 311 (photo credit: Ariel Jerozolimski)
traffic jam highway 1 311
(photo credit: Ariel Jerozolimski)
It has been decades since the Israeli company Sabra, the only local manufacturer of cars in the country’s history, folded. And because it failed, Israelis were deprived of realizing the dream of owning a locally produced vehicle. Therefore we, like our peers in most small countries, rely solely on the import of foreign-made cars.
For years, Israelis have been greeted with sticker shock when entering showrooms and seeing that the price they are asked to pay for a new car can be more than double what Americans and others pay.
There has been little outrage at this lopsided problem: Israelis make less and yet pay more for cars. It is time that the government and the public seriously consider reducing taxes on the import and purchase of cars, to drive their prices down to more reasonable levels.
Transportation Minister Yisrael Katz announced last week that he would appoint a committee headed by Prof. Yaron Zelekha, the highly respected former accountant-general of the Treasury, to examine ways to lower prices of cars and their spare parts.
Sources in the automobile sector expressed dismay at the committee’s formation, saying it threatened the entire industry.
Zelekha’s committee is expected to come up with recommendations for lifting barriers to competition, thereby cutting prices. Zelekha has in the past come out against the concentration that exists in Israel’s economy and in favor of creating more competition.
However, as pointed out in an article in The Marker, his committee “will not be addressing taxes.”
According to a recently released report by Keren Harel-Harari, an economist with the Jerusalem Institute for Market Studies (JIMS), the main reason that cars are so expensive is taxation.
According to the report, automobile “purchase tax, tariffs and VAT usually amount to 113-128 percent of the value of a car,” leaving Israelis to pay more than five times more in taxes than the average European.
Another problem JIMS found was concentration in the import market, whereby the four “largest importers are responsible for over half of sales in the country.”
The average salary in Israel is about 8,000 NIS a month but, despite the official figures, the reality is different for many Israelis who earn closer to NIS 6,000. That means that without financing it would take almost two years of income to buy a typical new car, like a Toyota Corolla or Mazda 3.
A Honda Civic might start at a cost of $16,000 in the US, whereas its cost in Israel begins at $33,000.
In other countries the average employee can buy the same car with only four to six months salary.
This is why Israel has one of the lowest rates of car ownership in the developed world, about 350 per 1,000 people versus 500 per 1,000 in Europe.
One corollary to the low rates of car ownership and the high prices of cars is that Israel has long tried to have a first-class public transportation system.
The expansion of the rail system and the efficient intercity bus services are examples of this. But a country can have excellent public transportation without denying people the ability to have a car with which they might tour the country or use to travel in when public transportation does not function.
The transportation minister’s initiative to establish a committee to examine the high prices is a step in the right direction.
However, the government must admit and ordinary citizens should realize that it is the exorbitant taxes placed on the purchase and import of cars that are responsible for most of the skewed prices.
JIMS estimates that the state receives NIS 9.4 billion from car taxes and tariffs each year, roughly enough to pay one-seventh of Israel defense budget of $16b.
Obviously, the government has gotten used to this huge revenue, but it is time to look into a way that it can exist without some of that money, so that the average Israeli can pay less for the privilege of driving a car.