Israel's roads: It's even worse than you think

Traffic jams on the Ayalon highway  credit: Shutterstock

Analysis of this year's car delivery numbers reveals trends leading to round-the-clock traffic jams.

The figures for car deliveries in Israel in October released last week look fairly tepid: slightly more than 19,000 new cars took to Israel's roads last month, and October has seen higher figures in past years.

The cumulative figure of 288,000 vehicles for the year to date represents a rise of only 15% over the figure for the corresponding period of 2019, before the outbreak of the Covid-19 pandemic. In other words, the market has recovered the sales lost in 2020 because of lockdowns and the economic situation.

But the "bottom line" approach is misleading in this case. 2021 has so far been an exceptional year for car sales, which have been constrained by supply rather than by demand, and we have seen the start of trends that will have a significant impact in the coming years.

Net addition grows

In normal years a not insubstantial proportion of new vehicles that appear in the formal delivery lists do not actually reach the end customer and do not go onto the roads. This happens for example in the case of vehicles bought by leasing companies for their stocks in order to be sold to customers as "secondhand from leasing", sometimes many months after the purchase, in what is known as the "zero kilometers market".

Also in this category are vehicles imported into Israel but unsold twelve months after their manufacturing date, in which case the importers have to register them as though sold to themselves ("self-licensing"). To these can be added vehicles bought by car hire companies with low usage. The assessment in the industry is that in a normal year vehicles sold on paper that do not go onto the roads that year account for 15-20% of sales.

In 2021, however, this category almost completely disappeared because of the global shortage of vehicles, the jump in local demand, and evaporating stocks. At the same time, stocks of fairly new used cars held by trade-in and leasing companies were also quickly depleted because of delays in supplying new vehicles, which translated into demand for secondhand ones. Thus the net addition of vehicles to Israel's roads in 2021 was considerably higher than in normal years.

Infrastructure not keeping pace with purchases

This is one of the direct reasons for the sharp increase in traffic, which is felt subjectively by anyone on the roads, and can also be measured empirically. The latest data gathered by Waze, for example, and published in late October, show a rise of 30% in traffic density in major urban centers in comparison with the period before the pandemic.

It is very doubtful whether Israel's transport infrastructure can for very long support the rate of increase in traffic and in the number of private vehicles, reinforced by rapid population growth and urbanization, and by the rise in private consumption and the standard of living.

The unavoidable result will be a transport failure such as in the major cities in China, meaning one big traffic jam around the clock. Since taxes on vehicles and fuel in Israel are already among the highest in the world, it would seem that the government is not left with many effective tools in its taxation toolbox to regulate demand for private cars.

In this context it should be pointed out that encouragement of the switch to "green" vehicles, resulting in a huge jump in sales of electric and plug-in cars in the first ten months of this year, will not only not solve the problem, but will make it worse. This dramatically cuts the marginal cost per kilometer of driving, which represents an extra incentive to use private vehicles rather than public transport.

It is therefore not unlikely that in the middle of this decade, and perhaps even before that, the government will have to take drastic steps to make drivers switch to public transport, just as the Chinese government did when it banned the use of some cars on some days of the week. The success of such measures depends, of course, on the huge public transport projects into which billions of shekels are now being poured being completed by the time they are introduced, and providing a reasonable alternative to the private car.

Car importers concerned about their success

The big players in the Israeli car importing industry have read the writing on the wall of the vehicle market this year. Some of them are starting to realize that the dizzying success in sales over the past year is liable to threaten their core business in the long term.

The clearest indication of this is the lively interest of companies in the industry in buying 50% of the shares in bus company Egged. Full or part ownership of Egged could become a significant source of revenue by the end of the decade, from both road and rail, and compensate for the inevitable hit to private car sales. It is no coincidence that the presentation to potential investors in the auction, distributed by HSBC in August, stresses that, by the end of the decade, usage of public transport in Israel, in terms of kilometers travelled and passenger numbers, is expected to triple.

Widening economic gaps

In a normal year, the new vehicle market in Israel faithfully reflects macro-economic developments. But in the past year it has become detached from them. For example, the latest macro-economic forecast published by the Bank of Israel Research Department, in October, projects 7% GDP growth for this year. Coming after a double-digit drop last year, this is a fairly wan figure, mainly arising from a rise in private consumption.

The employment rate is also still far from the pre-pandemic peak, and the fiscal deficit is expected to total 6.4% of GDP, which compares with 3.7% in 2019, and that figure too was the highest in seven years.

These macro numbers are presumably felt keenly among the less well-off, but, to judge from the breakdown in car sales in 2021, for the wealthy it was a dream year. In the first ten months of this year, deliveries of luxury cars (costing $70,000 and upwards after tax) totaled nearly 17,000, 11,000 of them from the "traditional" luxury brands: Mercedes, Audi, and BMW. This represents an increase of nearly 20% over 2019, before the Covid pandemic. For other luxury brands too, such as Jeep, Volvo, and Lexus, 2021 is shaping up as one of the best years for deliveries ever.

This segment also includes about 6,000 deliveries of Tesla cars, which are part of the premium market at least as far as pricing and target buyers are concerned. And if we add to the list several thousand prestige cars sold on the indirect import track and not included in the regular monthly delivery reports, we get a market approaching 10% of total deliveries, a record for the luxury segment, which amounted to 6% of total deliveries in 2019.

The conclusion is fairly clear: the 2021 car market in Israel reflects a widening of economic gaps in the country as a result of the Covid-19 pandemic. People in the lowest socio-economic strata, which went onto the crisis without savings or lost jobs in the course of it, have reduced their share of car purchases.

The wealthier classes, on the other hand, who entered the crisis with reserves of cash, property, and/or an appetite for high-risk investment, accumulated substantial capital during it, which has been channeled into "lifestyle" vehicles, whose share of the total market has grown. Anyone seeking social justice can take comfort in the fact that, in the end, everyone will be stuck in the same traffic jam.

Published by Globes, Israel business news - en.globes.co.il - on November 8, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Traffic jams on the Ayalon highway  credit: Shutterstock
Traffic jams on the Ayalon highway credit: Shutterstock
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