New car influx threatens Israel with gridlock

Dubi Ben-Gedalyahu

The Israel auto market is moving towards a historic peak of 300,000 cars sold per year.

Based on the existing backlog of demand and forecasts for the rest of the year, the latest predictions say that the auto market in Israel could easily cross the historic barrier of 300,000 new cars sold this year.

Anyone who thinks this is unrealistic should take a look at the figures. The car deliveries report for the first seven months of 2016, published last week, lists 192,000 deliveries so far this year, an increase of more than 15% over the corresponding period last year, in itself a record year. Deliveries totaled over 27,000 in July alone. If this pace persists until the end of the year, the 300,000 deliveries barrier will be easily crossed.

In normal times, auto deliveries slow somewhat in the fourth quarter of the year, especially in December, but 2016 is definitely not a normal year. The Ministry of Finance announcement of a revision of the environmental tax, which will go into effect in January 2017, put the already feverish market into overdrive, inciting the major institutional customers to inject significantly greater demand for cars to be supplied by the end of the year - or at least, to be released from customs "at the old tax rates."

Some will dismiss the situation as the problems of the rich or a shopping spree. From a broad national perspective, however, the situation is by no means welcome or a cause for celebration. The rush to buy cars, which has put more than 500,000 new cars on Israel's roads in just the past two years, is a transportation emergency.

Before accusing us of pessimism, allow us to quote a Knesset study written for the Knesset Economic Affairs Committee and published this month: "According to figures from the Central Bureau of Statistics, the number of vehicles grew by a cumulative 45.6% in 2004-2014. The length of roads grew by only 9.2%, and space on the roads by 21.9%. Mileage was up 31.4%. This means that the length of road per 1,000 vehicles fell by 25%."

The study recommended investing in upgrading public transportation and the motivation of drivers to switch to it, but this is an expensive long-term solution, the results of which are unclear because of three powerful background factors. The first is the low interest rate on credit and the absence of investment alternatives. The second is the company car benefit and free fuel for the vehicle fleet, which encourages greater mileage and reduces the motivation among hundreds of thousands of workers to use public transportation.

The third is the absence of available transportation solutions for weekends. Each of these factors is a taboo that no decision maker will touch. When the inferior experience of using publish transportation and the unattractive prices of public transportation in Israel in comparison with plunging fuel prices are added to the picture, the study's recommendations are rendered useless.

Magical solutions

Can policy designers do anything to cool off the red hot auto market in Israel and reduce purchases of vehicles? In normal countries, they would increase taxes on cars. In Israel, however, because taxes on vehicles are already among the highest in the world, it appears that this is not a feasible option. The question must also be asked whether policymakers have any motivation for taking such measures, in view of the inexhaustible revenues from auto taxes.

There is, of course, another immediate magical solution for the problem of road congestion, the solution now proposed by the responsible regulator (the Ministry of Transport) - a substantial expansion of public transport lanes at the expense of the roads currently open to all drivers in central Israel, combined with automated enforcement and increased fines. The declared purpose is to increase traffic jams until drivers are forced to select public transportation, despite its inconvenience and questionable quality.

While we are on the subject, allow us to propose that the minister of finance take the same tack for solving the housing problem in central Israel: double the municipal property tax on all homes in the central region, halt garbage collection, and limit water supplies to two days a week. Everyone will eventually take the hint and move to either the outlying areas or a tent on the beach.

Published by Globes [online], Israel business news - - on August 9, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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