The turmoil in the US auto industry has an impact on Israel as well.
Although there has not been an auto manufacturing industry in Israel for many years - since the good old days of the Sussita it turns out that there are more than a few Israeli companies that make parts for the US auto industry, and they are in the same dire straits that the entire industry finds itself.
The Israel Export and International Cooperation Institute is the most worried, and is currently preparing a plan to develop contacts and business deals with the auto industries in Japan (Toyota, Nissan, Honda, and others), South Korea (Hyundai and Daewoo), and China.
These are large industries, and Israeli companies' presence there is negligible. That is in contrast to the US auto industry, the primary market for the Israeli auto industry, and a market which has suffered in the current crisis.
The Export Institute plan will be funded out of the $30 million which were allocated to the institute as part of a package to support Israeli exports. The plan was based on the fact that the Israeli auto industry is primarily focused on the US, and it is time to diversify the risk.
"The crisis in global auto industries will hurt the Israeli auto industry a lot", says Israel Export Institute chairman David Arzi, who adds, "2008 is expected to end with 10% growth for the industry, which has sales of $750 million. However, the general expectation is that next year exports will drop by 30%, and some industry sources speak of a real catastrophe for Israeli firms in the auto industry in 2009, and apparently even beyond that."
Arzi says that although some companies have long-term contracts, if even one of the Big 3 US auto manufacturers falls into bankruptcy a not entirely unlikely scenario those long term contracts will be cancelled.
As an example, he cites Tadir-Gan (Precision Products) Ltd. (TASE: TDGN), which makes car parts, and has €160 million of signed agreements with General Motors. Recently, Tadir-Gan reported that a drop in operations at US car companies was liable to lead to a worsening of its financial results.
Tadir-Gan is not alone. According to Export Institute statistics, Israeli companies in the field have over $150 million in exposure to the US auto market.
Impossible to find investors
According to Export Institute director of automobile and subcontracting development Uri Pachter, "Today, it is clear beyond all doubt that new car sales for all manufacturers will fall significantly over the next 24 months. The result is that new models won't be produced, and new projects in which Israeli firms could have taken part will not be launched."
Pachter emphasized that the sector's difficulties would hurt Israeli start-ups and firms with new developments, which will find it hard to finance their activities for lack of investors.
According to Pachter, there are about 45 Israeli firms which produce and supply original equipment parts for global car manufacturers and sub-contractors. About 60 other companies produce and export replacement parts for the aftermarket. 20 other companies work in design and design development, measuring and diagnostic systems, and in cutting and engraving, all of which are used by the car industry.
Other companies develop car-related accessories, such as security and location technologies, and other technologies that began in the military and were converted to commercial use.
Yet not everyone is losing from the crisis in the personal vehicle market. Pachter says that manufacturers of public transport vehicles buses and minivans can smile, as there is strong growth in demand for those items.
Alternative energy firms that develop car-related products continue to attract attention as well, and developers of hydrogen-powered motors could continue to see interest in their firms.
A crisis on wheels? It may depend on whom you ask.
Published by Globes [online], Israel business news - www.globes-online.com - on December 15, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008