The One Product From China That Israelis Don’t Buy

A decade ago, entrepreneurs were racing to get Chinese auto dealerships, but today sales are infinitesimal

Mori Chen

Five years ago, a black luxury car was unloaded from a cargo ship at the Port of Eilat. The lineup of dignitaries awaiting its arrival included the Chinese ambassador to Israel, the mayor of Eilat, the port director and Dori Manor, the CEO of the David Lubinski car import firm.

The car was an MG 550, which despite its British heritage was the first Chinese-built car to meet the necessary standards to be sold in Israel.

It had taken years, but Israel’s first “made in China” car had arrived. Optimistic forecasts at the time predicted that Chinese cars would become as popular in Israel as Japanese and, later, South Korean cars had become. After all, China’s automotive industry is huge, in keeping with the size of the potential domestic market.

Back then, nearly every car importer in Israel was in talks with various Chinese auto makers about bringing in and selling their products here. Some even obtained franchises. The cornerstone was laid for a showroom for the cars of the Chery Automobile Company. Telcar brought Chinese-made Geely cars to Israel for test drives, although the franchise ultimately went to Calmobil. The Mayer Group reportedly signed on with JAC Motors and the Clal Group obtained a franchise from BYD Auto, and the list goes on.

The high hopes were dashed, however, within a few years, and today the Chinese presence in the Israeli car market is virtually nonexistent. David Lubinski, the longtime importer of Peugeots and Citroens, sells MGs, which are manufactured by SAIC Motor of China. Eastern Automobile Marketing, Israel’s Land Rover distributor, also sells models from Great Wall Motors Company.

But just four MGs were sold in Israel last year, along with 99 Great Wall vehicles. In fact, more Chinese buses than Chinese passenger cars were sold in Israel in 2014. It therefore appears that the great Chinese car invasion was called off, or at least deferred.

Opting for Asia autos

Israelis have shown a preference for Asian cars — first from Japan in the 1980s and ‘90s and then from South Korea, so it is understandable that importers would have jumped at the chance to sell cars from China. Asian cars provided what the Israeli consumer wanted: gasoline engines, automatic transmissions, sedan models and a reputation for reliability and good value. In the process, beginning with Subaru and followed by Mitsubishi and Mazda and then recently Hyundai, they became best-sellers, and Toyota, Honda, Kia, Suzuki and other Asian makes are also in demand.

Old-timers in the industry recall that at first Japanese and South Korean cars were basic and inferior to European models, and at least in regard to the South Korean cars, they were also of lower quality. The expectation that the quality of the Chinese cars would also improve is also very reasonable and it’s possible that the Chinese makes will be able to gain a foothold in the market here with lower prices, as is happening currently with Chinese cellphones.

The first importers of Chinese cars have been the ones who needed them most. Lubinski had been reliant on sales of Peugeot and Citroen, which had a problematic reputation. Eastern Marketing, after the collapse of the MG Rover Group, was left with just one brand — Land Rover, which specializes in high-end and niche all-terrain vehicles — not exactly a recipe for long-range financial stability.

Other companies like the Shlomo Group, the Mayer Group and Telcar were in major need of a broader product lineup and a diversification of supply. In the Israeli auto sales sector, it was common to think that the best product mix was a European brand and an Asian one, thereby involving purchases in different currencies and providing a hedge against changes in currency fluctuations.

Contacts with Chinese manufacturers required a lot of resources. They didn’t entail just regular trips to China but also extending lavish hospitality to Chinese business visitors to Israel, along with meetings with Chinese political officials and the payment of considerable sums to “demonstrate seriousness.” And this was all for a franchise of limited duration and with promises (but not a commitment) that the manufacturer would meet certain standards.

As a result, there were two factors that put a stop to any possible Chinese invasion. One was strict European standards and the other was a lack of motivation on the Chinese manufacturers’ part.

European auto standards, which prevail in Israel, are the strictest in the world. Apart from strict emission standards, they require that cars protect pedestrians in the event of a collision and that a certain percentage of a car’s parts be recyclable. Developing cars that meet these standards costs the Chinese car makers a fortune, and success only gives them entrée to the most competitive and congested car market in the world.

Europe’s recession

Adding to the difficulties, in recent years, the European market has been in a recession. Moreovet, the big investments the Chinese need to make to sell in Europe doesn’t allow them to offer cars at prices much lower than the more well-established models on the market.

On the other hand, there are markets beyond Europe and Israel that don’t have the same obstacles and where potential customers are eager to buy. Chinese car manufacturers can export to South America, Africa and Russia without meeting stricter European standards. Chinese auto makers had thought that going after the European market would accord their cars prestige among Chinese customers in their own domestic market, but it then turned out that buyers in China generally preferred foreign makes, even if the cars were assembled in China.

Here’s why Chinese car manufacturing doesn’t have the price advantage one might expect.

Unlike simpler Chinese-made products, car production requires expensive automation, which makes the lower labor costs in China a more marginal factor. In addition, development costs are very high, although some Chinese manufacturers don’t exactly develop their own cars, preferring instead to copy designs from established manufacturers with whom they collaborate.

The two Chinese car makes that entered the Israeli market with such fanfare have negligible sales, at least for the time being.

Dani Eini, the CEO of Eastern Marketing, the importer of Great Wall cars, says that he is pleased with the quality of the cars that he is getting but has a problem with the price. Rather than spreading the cost of meeting the European standards over all their operations, the Chinese add it only to the cost of cars being sold for export, Eini say.

“They’re forgetting that in the future, they will have to meet air pollution standards in China, too,” he says.

Eini says several Chinese manufacturers that came close in their regular production to meeting the European pollution standard that prevailed until 2009, but since then, European standards have become stricter and there is less of an effort to meet them.

The customer mix in Israel for MGs and for Great Wall cars is different. MGs passenger cars have been sold in part to car fleets, but also to young families who liked the accessories they come with. Great Wall has focused on the natural-gas powered pickup truck market through its Steed model. Great Wall has maintained a steady, if small, sales pace while MG sales in Israel appear to be plagued by unstable sales volumes.

Initially MG’s large 550 passenger car model was sold in Israel, but sales were halted after just 360 were bought. Then came a smaller family-sized model, the 350, but sales of that car were stopped after about a year. Such instability hurts the resale value of cars, which is the last thing that a brand that is new to Israel needs.

But the people at Lubinski, the MG importer, don’t sound concerned. What we have seen up to now is a taste of the MG, they say. This year, they will reinvigorate their sales pace with two new models, a family car called the GT and the GT-S, a sport utility vehicle based on Korean car maker SsangYong’s Korando model.

Lubinski says the quality of the cars that they have sold has been high and that they haven’t encountered mechanical problems. “We have a stock of spare parts that’s just sitting there,” one source at Lubinski.

“The only thing that needs to be replaced is panels after an accident.” Within two years, he adds, the Israeli market will be full of Chinese cars.

In the interim, however, on the road itself, Chinese cars still can’t compete with European, Japanese and Korean models. The engine and transmission and other aspects of the car are reasonable, but something about them just doesn’t come together, in this writer’s opinion. MGs come with a long list of safety features, but they have not been tested in Western crash tests. They did score well on Chinese safety tests though.

Although Lubinski is expressing optimism, other car industry sources say it will take Chinese car manufacturers 10 to 15 years to break into the European car market.