What’s really behind the price tag in the Israeli auto industry?
By Shmuel Katz, Owner of Auto King Garage
Think back to when you were first considering Aliyah. One of the pros of coming to Israel was that the cost of living was more reasonable. Sure, Israeli salaries were lower than in the Anglo countries, but the money went much further.
And then you got here. And yes, your rent was cheaper. Your medical insurance premiums practically disappeared. If you had kids (or were yourself college-aged), you were astounded at the reduction in your tuition costs. And then you went to buy a car.
When you buy a new car in Israel the prices are ridiculously high, especially when you realize that the same car is being sold elsewhere for much, much less. The same holds true for service and supplies. We are routinely asked why it is all so much more expensive in Israel than in America and many other countries.
There are a few reasons for this. One is that there are only a couple of companies supplying the Israeli auto market, creating a monopoly and allowing them to charge whatever they wish. Another is that for shops like ours, which only use Jewish (and mostly local) labor, labor costs are much higher than you would find overseas (or in Israel using non-Jewish workers).
But one of the biggest reasons is TAXES. We tend to think of taxes as something added on to a sale price or charged against our incomes. But here in Israel, there are less transparent taxes charged throughout the economy.
A significant portion of the price you pay for your car and its parts goes straight to the government. Be it import duties or other taxes, the government has its hand out throughout the supply process, including charging you VAT (MAM) on your bill. And this is not just about the parts, themselves.
When you buy gas for your car, between 60%-65% of the price is tax (including VAT). You might think the tax is limited to the 17% VAT. But no, there are special gasoline taxes imposed by the government to help fi ll the treasury’s coffers. You are essentially paying taxes upon surcharges upon taxes. Remember that the next time you fill up.
Also, unless you order original manufacturer parts, many of the disposable parts (filters and spark plugs, etc.) sold both here and in the USA are made in the same place – China. The shipping costs are probably comparable. So the two basic differences are the taxes we pay in Israel and Israel’s less competitive market.
Even labor is taxed here. Think about it. Your local garage has to pay its staff. A significant part of their labor cost is—you guessed it—income taxes. Both those withheld from the employee as well as the employer’s contribution. All this ultimately is passed over to the consumer.
Even the sale of a used car is affected by taxes. Remember, the original price of the car may have had 100% import tax built into the price. When selling the car, the market prices reflect things like value, depreciation, etc., but must also factor in the cost of a new car, which obviously includes the tax. So even though the sale of a used car might not actually be taxed – someone, somewhere, paid a tax on the car and must recoup some of this investment.
At the end of the day, the basic goods and services related to our cars are not actually as high as they seem to be. If we had free trade agreements and moderate import taxes, our costs would not be so out of line. It’s really not the auto-related expenses that are so high, it’s the government-related ones!
Shmuel Katz is the general manager and owner of Auto King Car Garage. Auto King is an American-run car garage in Beit Shemesh. Auto King provides top mechanical service, with customer service and transparency to match—a rarity in the industry.
Auto King is located across from the Big Fashion Mall and can be reached at 02-626-1613 or through their website www.autoking.co.il.