All That Glitters / Eight Ways to Lower the Cost of Cars

Israel's government is appointing a committee to lower the cost of buying and maintaining a car for the second time in its history.

Mazal tov! For the second time in its history, the State of Israel is setting up a committee with the mandate of lowering the murderous cost of buying and maintaining a car.

Don't shrug - cynics may groan until the cows come home, but a car is one of the most important things a family can own, and anyone who says otherwise is a liar.

Also important is how much that car costs. After the home, the car is the biggest expense Israeli families face. Buying a new family car every three years, say a Mazda 3, and traveling 20,000 kilometers a year, costs NIS 4,000 a month.

How? A leasing company charges NIS 2,500 a month, reflecting the costs of financing, buying, maintenance, insurance and fees. Add NIS 1,500 a month for gasoline, and there you have it. (The math is different for private car owners who don't drive company cars, but the amount is still the same. )

If the family has two cars, double the sum to NIS 8,000 a month.

That's roughly the average wage in Israel - which means that, in a two-car family household in the suburbs, one parent works full-time just to finance the cars. Any decrease in the price of cars in Israel will instantly increase the household's disposable income and improve its standard of living.

How can this be accomplished? The first committee didn't help. The new committee will be headed by Yaron Zelekha, who hasn't been shy about sharing his strong opinions about tycoons and monopolies.

Here are some ideas for his panel.

1. Lower sales tax. Taxes on new cars are comprised of 84% sales tax, 7% customs tax and 16% VAT. There is no reason Israel should have roughly the highest tax in the world on new cars. The government could easily lower the sales tax and thereby lower prices. The panel will have to suggest ways for the state to make up the lost tax revenue, however.

Advantage: Zelekha is no shrinking violet, and he has opinions, too. If anyone can find alternative sources of government income, it's him. One idea: Don't tax buying a car; tax its usage - for instance, through gasoline tax.

2. Ban exclusivity. Importers may wail about competition, but the truth is, if you want a Golf, you won't buy a Fiat even if it costs less. To create true competition for all brands and models, Israel may have an importer for a given model, but the retailers who come into contact with consumers must compete with each other. Markets like this don't just form overnight, however. They need a guiding hand and aggressive laws.

The state also could require manufacturers to appoint at least two official, non-related importers. The fact that importers can give handsome discounts to clubs and big clients proves they earn too much.

3. Shatter the monopoly over parts and maintenance. Create competition for the sale of parts, too - a particularly egregious area in which importers charge exorbitant prices. Often, local prices for parts are three times higher than they are abroad - and that's just for the garage, which then heaps on its own profit when selling parts to drivers.

Idea: Publish a list of prices for spare parts. Garages' costs will plunge.

4. Truly open the market to parallel imports, meaning that a company other than the official importer (named by the manufacturer ) can bring the cars to Israel and sell them in competition with the official importer. That's a good solution, but just a partial one, since manufacturers don't like the idea and may withhold popular models.

5. Open the market to personal imports and the import of used cars. In cases where that's been done before - for instance, with BMW and Cherokee jeeps - the local price has collapsed like a popped balloon, proving that the original price had been insanely high.

6. Ban importers from wild model proliferation. Or, stop importers from consolidating by buying each other up. Israel has only a handful of importers left. There's no upside for the consumer when the same company imports Mazda, Ford and BMW, and another imports Mitsubishi, Mercedes and Hyundai.

7. Ban importers from owning car leasing companies. All of Israel's big car importers have their own leasing company, thereby creating a concentrated vertical chain of control throughout the value chain: import, maintenance, financing, retail, service, parts and trade-in. That's great for them, but not so great for consumers who have difficulty comparing prices.

8. Create competition, or supervise prices. Have you ever bought a used car at the price recommended on the Yitzhak Levy price list? Maybe if it only traveled 1,000 kilometers, or maybe if it belonged to an old pensioner who lives abroad and it never left the underground garage. The publishers of these lists live off ads from importers and leasing companies who don't want low prices for used cars.