Rev-up nation: Why have luxury car sales surged in Israel?
Despite high purchase taxes, sales of cars costing over $84,000 have nearly doubled in recent years
Simona Weinglass is an investigative reporter at The Times of Israel.
For many Israelis, owning and maintaining a car is an unaffordable, or barely affordable, expense. A recent report by The Israeli manufacturers Association estimated it costs 28 percent of the average salary to own and maintain a car here.
But for a small minority of Israelis, price appears to be no object. According to a survey published recently by the department of the Chief Economist of the Finance Ministry, the number of luxury cars imported to Israel rose 83 percent during the years 2013-2016 compared to the years 2010-2013.
By contrast, luxury car consumption rose by only 1 percent worldwide in 2017, according to the Japanese business newspaper Nikkei.
The statistic is even more startling because Israel introduced a luxury tax in 2013.
The tax, which applies to large refrigerators, jacuzzis, yachts, furs, and luxury cars, raises the consumer price of such cars by up to 7 percent. But the tax appeared to have no dampening effect on the purchase of luxury cars, which are defined by the Israeli government as cars whose consumer price is higher than NIS 300,000 ($84,000).
Who is buying luxury cars?
The Times of Israel visited several luxury car showrooms to try to find out who is buying luxury cars and why sales have nearly doubled in recent years.
At the Ferrari and Maserati showroom on Menachem Begin Boulevard in Tel Aviv, the most expensive car on display was the Ferrari 488 Spider, which retails for NIS 2,361,800 ($657,206), nearly twice the price in the United States. The reason for this price discrepancy is that Israel charges an 83 percent purchase tax on new cars, even those not defined as luxury vehicles.
A public relations representative for the company did not return The Times of Israel’s phone call, but an employee of the building said he has seen many people entering the showroom, including local Israeli celebrities. But the most devoted fans of the cars by far, he said, were those who probably don’t have the means to buy them.
“Early in the morning, just before school starts, you see boys aged 12-18 come and gape at the cars through the window. They take selfies with the cars.”
In nearby Herzliya Pituah, which boasts showrooms for Mercedes, Audi, Porsche, Jaguar, and, until recently, Aston Martin, this reporter struck up a conversation with two salespeople at the Jaguar and Rover showroom.
“Our customers are the children of wealthy people, high tech entrepreneurs who made an ‘exit,’ as well as people who work in finance,” said Oshik Amar, a sales manager.
Other customers work in the construction and agriculture fields, a saleswoman said. Some are doctors and lawyers. A large percentage, she said, are Arab Israeli. “Arab Israelis are among our best customers,” she said.
Despite the fact that Israel has become one of the world’s top destinations for millionaires in recent years, new immigrants to Israel do not account for a large percentage of Jaguar and Rover’s clientele, Amar said.
“Some of our customers are businesspeople who moved here from abroad and they were used to driving a Jaguar or Rover there so they want one here,” he said, “but 90 percent of our customers are Israeli.”
Asked how he explains the rise in sales of luxury cars, Amar replied, “The Israeli economy is growing, wealth is growing, we can see it.”
It is a widespread stereotype in Israel that the owners of super-luxury cars are criminals or tax evaders who may be laundering money. Lending credence to this stereotype is the fact that it is legal to buy apartments and cars in cash in Israel (although a March 2018 law, which will go into effect in 2019, will make it illegal to use cash for transactions over NIS 11,000). Asked if any of their clientele had paid in cash, Amar replied, “Occasionally someone tries, but we only accept payment through banks.”
On the streets of Herzliya Pituah, a well-to-do city, one can see luxury cars parked on the streets. Amar told The Times of Israel that this has even drawn an unusual kind of tourism to the seaside city.
“On Friday mornings you see groups of teenagers with cameras at Hasira Junction. They have professional cameras with zoom lenses and they just stand there and take pictures the cars going by.”
Oligarchs vs meritocrats
In an attempt to explain the rise in sales of luxury cars, the chief economist report suggested that “perhaps there was an increase in the income of ultra-high net worth Israelis during these years.”
Economist Yaron Zalicha attributed the rise to Israeli tax and monetary policies.
“The low interest rates of recent years allowed car purchasers to borrow more money and also incentivized consumption over saving,” he told The Times of Israel.
“In addition, the government recently made it easier for people to import cars individually, which incentivizes the import of expensive cars.”
A survey of news articles and academic papers on the luxury car market reveals that in other countries the consumers of luxury cars are not necessarily people who are wealthy, but rather those who want to appear to be wealthy. A 2014 New York Times article revealed that the median annual income of luxury car buyers in the United States was $100,000 and noted that their car could therefore cost half of their annual income.
In her 2017 book “Sum of Small Things: A Theory of the Aspirational Class,” Elizabeth Currid-Halkett describes two categories of elites and their divergent consumption patterns. There are oligarchs and the nouveau riche, on the one hand, who like to buy luxury cars, and the meritocratic elite, or “aspirational class,” who prefer more subtle signifiers of status.
“A $2 heirloom tomato purchased from a farmer’s market is symbolically weighty of aspirational class consumption [while] a white Range Rover is not,” she wrote.
Does Israel’s growing penchant for luxury cars suggest that the country’s non-meritocratic elite could be on the rise?
The finance ministry study divided luxury cars into several subcategories: those that cost between NIS 300,000 and NIS 1 million, and super-luxury cars whose consumer price is over NIS 1 million ($278,000).
Out of 288,000 cars introduced to the roads in 2016, about 10,300 (or 3.6 percent) were subject to the luxury tax. Sixty percent of these luxury cars sold for between NIS 300,000 and NIS 400,000, according to the survey.
As for super-luxury cars costing over NIS 1 million, popularly referred to as “supercars,” only 238 of those were introduced to the roads in 2016, according to the chief economists’ data, and spotting one of these on Israel’s roads is an unusual event.
As the building employee who works next to the Ferrari showroom told The Times of Israel, “There are a lot of expensive cars out there. But when you see a supercar, it’s like ‘wow.'”
