Government Prepares to Cancel Exclusivity in Car Import Licenses

Committee to recommend breaking monopoly in imports of vehicles, spare parts.

The Finance and Transportation Ministries are planning to revolutionize the car import industry by opening it up to competition.

Currently, there is only one licensed importer for each brand of car. Therefore, although there is competition between two brands, like Mazda and Toyota, there is no competition among Mazda dealers: They are all affiliated with the sole licensed Mazda importer and sell their cars for exactly the same price.

But the Sofer Committee, a joint treasury-Transportation Ministry panel established a year ago that is slated to submit its recommendations within a month, is expected to call for "parallel" imports of both cars and spare parts - meaning that several dealers would be allowed to import the same brand, or spare parts for it, simultaneously.

The current system of exclusive import franchises has produced huge profits for car importers. As reported in Haaretz earlier this month, Colmobil, which imports Mitsubishi, Mercedes, Hyundai and Scania cars, earned cumulative profits of more than NIS 800 million in 1998-2001, while Delek Motors, which imports Mazdas, earned cumulative profits of some NIS 1 billion from 1998-2003. This puts them among the country's most profitable companies.

These high profits are due not only to the lack of competition in car imports, but also to the similar lack in the import of spare parts. Though there is some competition in the spare parts market - specifically for parts not made by the original manufacturer - original parts can be imported only by the licensed dealer. Therefore, only Colmobil, for instance, can import original parts for Mitsubishis, and only Delek can import original parts for Mazdas. And since most dealers condition their guarantees on the use of original parts, many drivers are forced to use these parts. As a result, the Sofer Committee's recommendation to open up the original parts market to competition is also expected to produce significant savings.

The panel's assumption is that manufacturers will feel a certain loyalty to importers with whom they have signed long-term exclusive franchises, and therefore, will not rush to help competitors. However, there are middlemen around the world who buy new cars from manufacturers and then resell them to dealers, so competition could be possible even if manufacturers decline to cooperate.

The committee does, however, plan to recommend regulating the industry to ensure that new importers abide by standards of safety, service and reliability.

The biggest chunk of a car's price tag is its tax, and that will remain unchanged. Taxes on cars in Israel are among the highest in the world, ranging from 128 to 144 percent of the manufacturer's price. Therefore, for instance, if a car were sold in Japan for NIS 100, its sticker price upon docking in Israel would be as high as NIS 244.

The dealers then add a margin of 15 to 25 percent to that price, meaning the final sale price would be NIS 280 to NIS 305. Generally, the margin is smaller for less expensive cars and larger for more expensive ones, but only 15 to 25 percent of that margin would be affected by competition. Therefore, on less expensive cars, where the margin is already close to 15 percent, many analysts say the savings will be small - no more than 5 to 10 percent.

However, others disagree. First, they argue, the enormous profits earned by the car importers indicate that margins may be higher than the common estimate of 15 to 25 percent. And second, even a 10 percent reduction on a product that costs over NIS 100,000 is a significant sum.

These analysts add that major savings can also be expected on parts, since the dealers' margins on original parts are considered to be enormous.