Although BMI had been concerned that the conflict in Gaza during Q314 would undermine new vehicle sales in Israel - which were down by 12.1% year-on-year (y-o-y) in the month of July - there was no lasting effect. So, based on current buoyant sales trends, BMI is targeting full-year total new vehicle sales of around 260,000 units, representing annual growth of around 16%.
BMI believes that there will be a slowdown in new vehicle sales growth in 2015. We are targeting growth of 4.5% in passenger car sales, with slightly stronger growth of 7% for the commercial vehicle sector. Passenger car sales could well be undermined by higher taxes and still-depressed consumer confidence. That said, passenger cars will continue to account for the lion's share (77%) of total new vehicle sales in 2015. Over the full forecast period to 2018, we are targeting 24% growth in the overall Israeli new vehicle sales market, which will take annual sales to just above the 320,000 unit mark.
On the positive side, a growing economy should lend support to new vehicle sales across 2015 and beyond. BMI's Country Risk team is forecasting GDP growth of 3.3%, up from 2.5% estimated for 2014. A moderation of austerity policies over the coming years, coupled with increasing exports and a subsequent acceleration in fixed investment growth, underpin our positive view for the Israeli economy over the next five years and we forecast real GDP growth to average 3.6% over this period.
Turning to private consumption, a key indicator of likely demand for new vehicles, we are forecasting growth of 3.5%, up from 3% in 2014. Low interest rates - the Bank of Israel cut interest rates twice over Q314 to take the policy rate to 0.25% - should also prove supportive to vehicle demand, as they feed into lower rates for car loans, which will aid those Israeli consumers dependent on auto financing for new car purchases. In this context, we believe that there may be a further 0.1% cut in Q414, with these ultra low rates set to endure across H115. However, in H215, we are then expecting a hike in rates back to the 0.5% level. Overall, we believe that consumer confidence will improve across 2015, albeit only modestly.
One corollary of lower interest rates means that the shekel will continue to weaken against the dollar, which will increase the cost of US-built cars to Israeli citizens and could therefore continue to support the current dominance of Asian players on the local market.
There is no significant domestic car production currently being carried out within Israel, although there are two locally-based manufacturers of military vehicles - AIL and Plasan - who produce a range of specialist vehicles for use by the Israeli Defence Forces.
However, the Israel Corporation is a 50% shareholder (alongside Chery Automobile) in Qoros Auto, which was founded in 2007. The company's first car - the Qoros 3, a mid-size four-door sedan - was launched onto the Chinese market in early 2014 and has now been joined by a hatchback version, with a sport utility vehicle (SUV) also reportedly ready to be launched before year-end.
Israel remains a key manufacturer of specialised motor parts and technology, notably within the fast-growing area of vehicle telematics, which is expected to show extremely strong growth over the remainder of this decade. According to Spanish broadband and telecommunications provider Telefonica, the number of vehicles with built-in connectivity as a percentage of total vehicles is expected to rise from 10% in 2013 to 90% in 2020.
In October 2014, Toyota's subsidiary Toyota Information Technology Center co-hosted a meeting in Tel Aviv, known as HackCars, which allowed programmers, start-up companies and other IT entrepreneurs to present their ideas and apps for improving car safety and performance. There is speculation that other Japanese manufacturers may look to follow Toyota's lead and look to tie-up with Israeli tech companies in the future, to come up with new safety or performance applications within the auto sector.
Looking at the most recent sales data (for January-October 2014), Hyundai Motor remains the leading player on the Israeli new light passenger vehicle market, selling 27,890 units for a market share of 13.3%, according to figures from the IVIA. However, its market share is down from 15.8% in the January-October 2013 period. In second place is Toyota Motor on 23,687 units (11.2%), followed by Kia Motors on 22,915 (10.9%).
Fourth place is taken by a resurgent Mazda, whose sales are up by 67.4% on the previous year, at 15,405 units (7.3%), with Czech carmaker Skoda holding on to fifth position on 12,415 units (5.9%).
There are company profiles (including SWOT Analysis) for Colmobil (Hyundai Motor, Mercedes-Benz, Mitsubishi Motors and Freightliner) and Delek Motors (Mazda, Ford, BMW and MINI) in this report.
Among the leading sellers of heavy commercial vehicles (HCVs) on the Israeli market are German truckmaker Mercedes-Benz, alongside Swedish truckmaker Volvo Trucks and US automaker Chevrolet. Other truckmakers selling into the Israeli market include DAF Trucks, Fiat and Isuzu.