Every few months we put on overalls, abandon the air conditioning, and go on a tour of used car lots across the country to learn about the state of the secondary market.
The used car market is far from the glamour of the new car market, from the fancy showrooms and international marketing and advertising tactics. It is a market of "irons", of bargaining and sales tactics, which have not changed much since the days of the horse trading of the Jewish town.
But this market is of critical economic importance. It is the broad foundation on which sales to individuals and institutions in the new car market in Israel are based.
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What's more: the economic values of the "goods" sold there ("GART values") form the basis for loans, leverage, and bonds totaling more than 15 billion shekels. Without a reasonable flow of used car sales, it is very difficult for the entire automotive market to develop.
But the current situation on the ground is one of a massive "traffic jam." Enormous quantities of new vehicles are flowing into the narrow car market without used cars moving out at a matching pace. The result is a bubble, which should set off a lot of red warning lights.
A long and difficult sale
As of today, it is much more difficult to sell a used car in Israel at realistic values or at all.
If you are a private seller and your vehicle does not belong to a narrow category of "sought-after" models, whose condition is exceptionally good, you will probably wait a very long time - and will have to drop the initial price considerably - until you are able to sell the vehicle to a private customer.
This is true for both relatively new cars from recent years and very old ones. In the middle, there is a narrow price range of relatively inexpensive models, in the range of 25-45 thousand shekels, which sell relatively quickly if they are in decent condition. Everything else is doomed to a wait of many months.
In their distress, many try to sell their vehicles through the institutional channels, i.e. car dealers and independent trade-in agencies or those of importers. However, the institutional sector is also saturated and very selective.
Car parks across the country are full to capacity, and almost every other day a new car park pops up in the outskirts. In fact, the most attractive business in the industry today is marketing vacant lots for storing used vehicles.
The indications of this are not only the physical and obvious congestion in the lots, and not only "surplus fairs" like the one that will be held this month at the exhibition grounds - if car dealers who own dozens of lots across the country need a "surplus fair, that probably means something - but also the marketing tactics. Alongside the advertising of discounts of tens of percent off the official "list price," huge ads are currently appearing offering "leasing vehicle turnover," meaning private or operational leasing at floor prices on used vehicles. This is definitely a warning light, meaning "we must get the car off the lots at all costs.".
The situation at importers' trade-in agencies is not much different. Due to the saturation of the second-hand market and the difficulty of selling, importers' trade-in has become an essential tool for closing deals on new vehicles. Although car importers operate a selective filter regarding the vehicles they purchase and pay for, usually minimum prices, the congestion is still enormous today and the main way to drain it is to transfer vehicles to secondary trade networks, which specialize in absorbing importers' surpluses. This solution has an economic cost, which is shared by the importer and the vehicle owner. In the end, it only moves the "traffic jam" further, to another link in the chain.
Extraordinary situation
Used-car market gluts are nothing new in the auto industry, and they tend to vary with seasons and business cycles. At the end of a peak tourist season, for example, rental companies release a large number of surplus cars, and the beginning of the calendar year, which is a time of high new-car purchases, also creates a glut in used cars. But the current period is unusual for several reasons, which stack up against each other.
For starters, the competition for customers between the new and used car markets has never been so fierce. The zero interest rate in the economy and the availability of cheap credit greatly assist customers with minimal equity - that is, customers who would normally purchase a used car - to purchase a new car. Importers, leasing companies, banking institutions and non-banking institutions are currently going out of their way to provide credit for the purchase of a car when almost the only security against the credit is the lien on the car itself. We don't know what the Banking Supervisor has to say on the subject, but common sense says that using as collateral a product whose value (both as used and as new) is fictitiously inflated and uncertain is not the safest thing in the world.
In addition, the fierce competition between importers in the car market, the low exchange rates for imports, and the spirit of "price reduction at any cost" currently blowing from the Ministry of Transportation are currently pushing new car prices into the clear territory of the used car market. We're not just talking about cheap "mini" cars, which cannot be a real alternative for most family customers. The competition is also coming from new "normative" models, whose prices are plunging into the NIS 80,000 territory - and in recent weeks alone we've seen several examples of this. To this can be added the sales of "first-hand, zero-mile" cars by leasing companies, which, while they do constitute a small percentage of the market, come mainly at the expense of used car sales.
The decline in new car prices is not accompanied by a corresponding decline in service and spare parts prices (which is perhaps the biggest failure of the Ministry of Transportation reform), and the result is a decline in the motivation of the small customer to buy a used car. Although the predicted decline in the value of the new car is a balancing factor, in the battle between the known and the uncertain - purchasing the new car is seen as the preferred alternative.
Waiting until the explosion
Adherents of the "successful" method will certainly argue that this is at most a passing and negligible bump, of which there have been many. The low shekel exchange rate currently provides a lot of "meat" for all the established players in the new car market to subsidize the purchase and sale of used cars at a loss, and the fiction of the used car price list, which maintains high and apparently stable values, keeps the whole package apparently stable.
And besides, they will say, this is how the used car market behaves all over the world. But in the global used car market, there are "pressure relief valves" in the form of used vehicle exports and proper scrapping programs. In our country, the Treasury does not allow the export of used cars (even though some of our geographic neighbors are enthusiastic consumers of imported used cars) and the scrapping program is a public relations act and a pressure cooker without a relief valve is bound to explode.
