Viewpoint / King of the Road for a Day

It's a war over NIS 20 billion a year. It's a war that touches every Israeli with a car.

Shlomo Shmeltzer is the one who unleashed the dogs. He's the man behind New Kopel SIXT, Israel's largest car leasing company. New Kopel has a 37,000 car fleet and 30 percent of Israel's leasing market.

Israel's leasing sector has reached tremendous dimensions of late. It bought about half the new cars sold in Israel last year. Every second car was sold to one of the four large leasing companies, of which, as we said, Shmeltzer's is the biggest.

Shmeltzer's people granted an interview to TheMarker two weeks ago, leaving no room for doubt about who rules the leasing sector. They're the ones who decide whether a given model car will ply Israel's roads or not. New Kopel sets the trends and tells its clients what cars they're going to drive.

The king is dead. Long live the king

Once, the unchallenged king of Israel's car market was Gil Agmon. The manager of Delek Automotive, he ruled the roost for years, importing Mazdas and Fords as well. Agmon was the first to realize the vast potential of the leasing market, and he was first to jump on board.

Clever marketing to the leasing companies made Mazdas the car the fleets bought the most, and therefore, the most-sold car in Israel. His clever marketing made Agmon the most successful and richest of all the car marketers in Israel.

But his reign is over.

Agmon, who created Shmeltzer and all the other leasing managers, now finds himself dwarfed. I am the king, Shmeltzer said in the interview. Power has passed from the car importers to the leasing companies.

The car importers are very unhappy about this revolution. Off the record, they moan about the monster that rose up against its makers, and after the frank interview in TheMarker, they went public with their beefs.

"The leasing companies are dangerously neglecting their cars," Peugeot's importer Dori Manor said a week ago. "The size of the leasing market should be 20-25 percent of the car sector, no more," he said.

The devil and the deep blue sea

The importer's attack on his biggest customers is worthy of note, and now the battle is right out there in the open. It is a battle for a NIS 20 billion market which had been controlled by the car importers' monopoly, and is now controlled by the monopsony of the leasing companies.

Ambition, ego and pricing are all involved. Will the importers continue to woo the leasing companies through discounts? Or will they squeeze them by abolishing the bargain prices? However they do it, the war is not going to leave the public on the sidelines.

If the public has a choice between a monopoly or a monopsony, it isn't clear which is better. Neither has exactly striven for the greater good of humankind. The fact is that the leasing companies managed to wrest handsome discounts from the importers and some of that benefit rolled over onto the customers leasing the cars. Also, Israel's roads are plied by younger, safer cars because of the leasing companies.

On the other hand, the competition for the leasing companies' business left no room for discounts for private car buyers. Importers have to promise the leasing companies not to give anybody else sweetheart terms, to avoid compromising the value of the leasers' fleets.

The leasing companies also impaired the quality of maintenance and service at the garages. As Dori Manor complains, to save themselves money, they have reduced maintenance to a dangerous minimum.

Who should the public support in this war? The Finance Ministry may save us the decision. To stabilize tax revenue, the ministry wants to prevent distortions in the market, and the wild growth of the leasing market is exactly the sort of distortion it doesn't want.

The "private use value," or the amount deducted from your salary for the right to drive a company car, is far lower than the real cost to the company of maintaining the car. This is a big encouragement to use company cars instead of buying one. In its 2005 budget, the treasury managed to slightly increase that "private use value," something which will slightly increase tax revenues. In the long run, the treasury means to keep raising that figure until the "private use value" is the same as the real cost of use. When this happens, workers will have no incentive to prefer a company car to a private one, and the leasing market will return to realistic dimensions.