Dun's100: Car importers have bad year

The 2012 Dun's100 rankings show falling vehicle sales and the rising importance of leasing companies.

The vehicle leasing sector is currently under the regulator's magnifying glass ahead of the new motor vehicle licensing law. Minister of Transport Yisrael Katz's agenda is over-concentration in the industry, or as he likes to say at every opportunity, "15 families which have a NIS 30 billion annual turnover". This agenda is mostly based on his gut, as the Ministry of Transport has no access to the industry's real financial data, which is held by the Ministry of Finance and the Antitrust Authority, and is protected under business confidentiality laws.

We know this because one of the key articles in the Zelekha Committee recommendations and Ministry of Transport's proposed competitiveness reform is a demand for full access to the complete financial reports of vehicle importers and leasing companies. The Ministry of Transport knows the adage "information is power" perfectly well and it wants full control of this power, sponsored by the legislature.

We can only guess what the Ministry of Transport wants to do with this information, where it will end up, and who will use it. Perhaps a committee on surplus profits will be established and will decide which companies are making too much profit to the minister's taste, and the ministry will try to curtail it. But more likely, the information will be published as a populist weapon or to be used by potential business rivals, all in the name of "competition and the public good", of course.

Imports as tax revenues cow

"Globes" also has no access to the motor vehicle industry's financial data, except for the handful of public companies. But once a year, Duns & Bradstreet Israel publishes its Dun's 100 - Israel's Largest Enterprises, and its editors frequently secure the cooperation of private companies in the industry, which agree to share usually confidential data, including revenue and the number of employees.

The companies naturally do not disclose their profits, but the survey for 2012 offers an interesting picture. Eleven top car importers had NIS 29 billion in aggregate revenue in 2012. If the smaller companies are added, the industry's turnover (excluding leasing companies) undoubtedly reaches NIS 30 billion. However, two comments are in order: first, the reported income of some companies includes extensive trucks, buses, and heavy engineering equipment business; and second, the heavy taxes levied on cars means that at least half of the aggregate revenue ends up in the government's coffers.

The revenue from heavy vehicles is substantial for some companies, even exceeding their revenue from the import and sale of cars. This has a direct effect on the companies' rankings. For example, Dun's 100 ranks Volvo and Honda importer Mayer Cars and Trucks Ltd., which also has an extensive heavy vehicles business, as the third largest "car agency and importer" category in 2012, even though it is ranked ninth in the car import category.

As for taxes, since most of the taxes in the motor vehicle import sector are indirect taxes, collected at the time of purchase, they are one of the Ministry of Finance's most important and largest sources of revenue.

The 2012 survey indicates that most car importers had substantial drops, even double-digit declines, in revenue, compared with 2011. Only two of the top eleven companies bucked the trend: Ford and Mazda importer Delek Automotive Systems Ltd. (TASE: DLEA), which reported 12.1% revenue growth, thanks to its acquisition of BMW importer Kamor Motors; and Suzuki, Chrysler, Jeep, Dodge and Porsche importer Automotive Equipment and Vehicles (2004) Ltd., which had 11.9% revenue growth in 2012. Since there was no major change in Automotive Equipment's car import business last year, the jump in revenue was presumably from its acquisition of MAN trucks and buses importer.

Few employees, large revenue

The top eleven motor vehicles companies had 7,000 employees in 2012, and a simple calculation shows that the industry's productivity rate is one of the highest in Israel: NIS 5.99 million revenue per employee in 2012, although there is wide variation between companies.

Toyota importer Union Motors Ltd., controlled by George Horesh, is the leanest and most efficient company in the industry. Ranked sixth, with NIS 2.62 billion revenue in 2012, it has only 168 employees, which means that its productivity is NIS 15.6 million. Next in line is Delek Auto, with 326 employees, resulting in productivity of NIS 12.6 million. In third place is Kia Motors importer Talcar Corporation Ltd., with 170 employees, resulting in productivity of NIS 10.3 million, double the productivity of the fourth-ranked company by this criterion, Hyundai and Mercedes-Benz importer Colmobil Ltd.

The common denominator of all these companies is business focus, which enables them to keep their workforces small. Union Motors, Delek Auto, and Talcar have almost no heavy vehicles business, which is labor intensive, and they have only a few directly owned garages.

The Zelekha Committee and the Ministry of Transport have cited "importers' garages" as a source for the lack of competition in the motor vehicles industry, and the ministry is now trying to legally restrict garage chains. In practice, it turns out that importers' ownership of garages is a labor-intensive activity, which sometimes reduces profits, rather than increases them. It can therefore be assumed that the industry will not bewail restricting garage chains by law.

Dun's100 2012: Largest Car Agencies and Importers

  1. Colmobil: Revenue - NIS 5.04 billion in 2012, down 10.4% over 2011; employees - 950; productivity - NIS 5.3 million.
  2. Delek Automotive Systems: Revenue - NIS 4.11 billion in 2012, up 12.1% over 2011; employees - 326; productivity - NIS 12.6 million.
  3. Mayer Cars and Trucks: Revenue - NIS 4.09 billion in 2012, down 5.2% over 2011; employees - 1,886; productivity - NIS 2.2 million.
  4. Volkswagen, Audi, Seat, and Skoda importer Champion Motors Ltd.: Revenue - NIS 3 billion in 2012, unchanged over 2011; employees - 600; productivity - NIS 5 million.
  5. Renault and Nissan and importer Carasso Motors Ltd. (TASE: CRSO): Revenue - NIS 2.7 billion in 2012, down 4.6% over 2011; employees - 517; productivity - NIS 5.2 million.
  6. Union Motors: Revenue - NIS 2.62billion in 2012, down 1.9% over 2011; employees - 168; productivity - NIS 15.6 million.
  7. Chrysler and Isuzu importer Universal Motors Israel Ltd. (UMI): Revenue - NIS 1.89 billion in 2012, down 26.6% over 2011; employees - 615; productivity - NIS 3.1 million.
  8. Talcar: Revenue - NIS 1.75 billion in 2012, up 2.9% over 2011; employees - 170; productivity - NIS 10.3 million.
  9. Automotive Equipment: Revenue - NIS 1.71 billion in 2012, up 11.9% over 2011; employees - 574; productivity - NIS 3 million.
  10. Peugeot and Citroen importer David Lubinski Ltd.: Revenue - NIS 1.53 billion in 2012, down 13.1% over 2011; employees - 597; productivity - NIS 2.6 million.
  11. Caterpillar Inc. (NYSE: CAT) importer Zoko Enterprises Ltd. (TASE:ZOKO): Revenue - NIS 581 million in 2012, down 9.7% over 2011; employees - 527; productivity - NIS 1.1 million.

The leasing market

A fascinating picture about the importance of the leasing market to the Israeli car importers and the economy in general emerges from the Dun's100 data. In 2012, six of the twelve top ranked leasing companies bought NIS 11.2 million worth of new cars. There are no data about purchases by the other companies in the rankings. In other words, these companies were responsible for one third of the car importers' revenue in 2012, without taking into account purchases by rental companies Eldan Transportation Ltd., Hertz Israel Ltd. and Carasso subsidiary Lease4U Ltd., which Dun's 100 did not cover.

Extrapolating from the data by taking into account 240,000 cars in these uncounted companies' leasing fleets, their purchases of cars adds NIS 4-5 billion. Deducting the estimated revenue from heavy vehicles, yields the result that almost 60% of car importers' annual revenue comes from the car leasing companies.

Several conclusions can be derived from these data. First, for many car importers, the car leasing companies are critical - "If you're there, you don’t exist". Direct operations in the leasing market are the only way to ensure a large piece of the largest revenue pie.

Second, is that cross-subsidizing - the large discounts given to the leasing companies, which Katz has targeted in his competition campaign - are here to stay, regardless of what the regulator will do about it. When 5-6 companies buy $3 billion of goods a year, you simply have no choice but to give them incentives or large commercial discounts.

Third, if the regulator believes that he can reconfigure the Israeli car market by "cut and paste", he should read the data carefully. The $3 billion in annual purchases are made by leasing companies which have an aggregate equity of only NIS 3-4 billion. All the rest in credit, liens on cash flow, and leverage. In other words, if the regulator pulls one card from this tower, it will probably collapse and take with it several financial companies, and most of all, a great many small savers.

Dun's100 2012: Operating Leasing Companies

  1. Shlomo Sixt Ltd.: total assets - NIS 7.36 billion in 2012, down 3.8% over 2011; investment in cars - NIS 5.01 billion; equity - NIS 811 million.
  2. Eldan Transportation: total assets - NIS 3 billion in 2012, up 3.8% over 2011; investment in cars - NA; equity - NA.
  3. Albar Ltd.: total assets - NIS 2.88 billion in 2012, up 3.6% over 2011; investment in cars - NIS 367.7 million; equity - NIS 367.7 million.
  4. Avis Israel franchisee Kardan Vehicle Ltd. (TASE: KVCL): total assets - NIS 2.41 billion in 2012, up 4.3% over 2011; investment in cars - NIS 454.5 million; equity - NIS 454.5 million.
  5. Hertz Israel: total assets - NIS 2.07 billion in 2012, up 3.9% over 2011; investment in cars - NA; equity - NA.
  6. Lease4U: total assets - NIS 1.12 billion in 2012, down 2.6% over 2011; investment in cars - NA; equity - NA.
  7. Cal Auto Ltd.: total assets - NIS 945.7 million in 2012, no change over 2011; investment in cars - NIS 178 million; equity - NIS 178 million.
  8. Operate Lease Ltd.: total assets - NIS 831.8 million in 2012, up 4.4% over 2011; investment in cars - NIS 124 million; equity - NIS 124 million.
  9. Prime Lease Ltd.: total assets - NIS 816.1 million in 2012, down 9.3% over 2011; investment in cars - NA; equity - NA.

Published by Globes [online], Israel business news - www.globes-online.com - on June 26, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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