Drop in 2006 used car prices reflects advent of tax reform

"The prices appearing in used-car price lists are good only in theory," says Tomer Dotan, CEO of Autodeal, Israel's largest second-hand vehicle dealer. "Most second-hand cars were sold at a significant discount to their listed price in 2006."

The most popular used car, according to Dotan, is a 1.6 liter automatic sedan costing in the region of NIS 80,000. "Any car put up for sale by a private owner for around that price is highly tradable unless it is a brand that suffers from a problematic image," he says.

Amit Alon, who deals in Jaguars, agrees with Alon's assessment. "Customers always prefer a privately owned car. Most people look upon leasing cars as if they were rental cars, with all that implies from a maintenance point of view."

According to Dotan, the used car market slowed down in the final months of 2006 because the public was holding out for prices to drop at the beginning of 2007.

"The media played a big part in the slowdown. When it reported expectations for a significant reduction in second-hand car prices as a result of the tax reform, buyers decided to hold out until the beginning of 2007," he says.

The hardest-hit market segment last year was small commercial vans such as the Ford Connect, Renault Kangoo and Citroen Berlingo. The annulment of the VAT rebate on light commercial vans as of August 2005 has made the purchase of the vans uneconomical for business owners who used to receive the rebate.

As a result, the market has been flooded with used commercial vans.

"Used Berlingos and Kangoos are trading at 30 percent under their list price. Most of our customers have switched them for diesel-run sedans," he says.

The second Lebanon war didn't have much of an effect on used car sales, Dotan notes. Most used car sales are in Tel Aviv where the effects of the war were not felt. In addition, the second-hand market in the North bounced back very quickly.

According to Autodeal's figures, the most popular second-hand car in Israel last year was the Mazda 3. When the public sees thousands of Mazda 3s on the road, it concludes that the car is reliable and has a big demand.

Second place

Second in the popularity stakes, says Dotan, is the Toyota Corolla, but the reason for its popularity is not the large numbers of this model out on the roads. "The public sees the Corolla as a very reliable car even without thousands of cars being sold to the leasing companies. At the moment, the major consideration of people buying used sedans is reliability and the Corolla meets that requirement perfectly."

In the supermini category, 2006 saw an increase in demand in the Dan Region. "People have become more aware of parking problems, and the cost of fuel and insurance," explains Dotan.

"Supermini buyers weren't selective," he adds. "European and Japanese brands both sold well."

The Mazda 6 was the top-selling executive car in 2006, with the Volkswagen Passat enjoying similar demand. "In 2006 we saw an increase in demand for the Subaru B4. Demand for the Ford Mondeo was relatively low in the used-car market. Even though it is a good car, the public still prefers to make its purchases based on salability and used Mazdas sell a lot better than Fords," Dotan asserts.

Demand for luxury cars also climbed in 2006, Dotan says. "There was an increase in demand for unique models such as the Mercedes S Class, the Mercedes CLS and the BMW 5 series, and even sports cars like the Mercedes SL, which costs over NIS 1 million, sold well. It's a social phenomenon. Customers want to be the first to own the newest and most unique models. This year we sold 650 Mercedes, of which dozens were S Class. We also sold 680 Audis, 10 of which had 2.4 liter engines. Last year saw a significant increase in demand for premium cars such as Porsche, Jaguar and Mercedes. Clients aren't modest about their incomes and like to flaunt luxury cars," says Alon.

Dotan notes a decline in demand for American executive models.

"American cars offer good value for money, but second-hand they are sold for tens of percent off the list price."

Mitsubishi Magnum and Toyota Hilux enjoyed heavy demand in the pickup truck sector.

"The Magnum's image has been boosted thanks to the appearance of the Hunter. People see more Mitsubishis on the road and the Hunter's futuristic look creates a strong brand identification. The Hilux also sells well, thanks to its image as a reliable car," concludes Dotan.

A senior car industry executive says that the price list published by assessor Levy Yitzhak is distorted. "The price list knocks only 6 percent off the price for purchases from leasing companies, taking into account their high kilometrage. The deduction does not reflect the reality of the market and we hope this will be corrected in the 2007 price list."