The EV (Electric Vehicle) Market is Here It Will Never Again be Business as Usual

The relationship we share with the cars we drive is about to change and we will not be going back. There was a time when horse carriages and buggy whips were in high demand then came along the internal combustion engine and it changed the world. Similar events are upon us now. The electric vehicle (EV) era has arrived worldwide to be quickly followed by autonomous piloted vehicles but we get ahead of ourselves let’s deal with the immediate issue the EV.

Looking at this emerging automobile market through new eyes, professional eyes, there is a lot for us to learn from the professional fleet managers that we can apply to our personal vehicle holding portfolios. After all, cars are the second most expensive item most of us control next to our homes – this exercise makes sense.

For starters, automobile fleet managers do not see their stock their inventory in the same appreciative personal light that we consumers do. Their stock is an investment that produces income they are dispassionate towards it; it is not something they dream about or spend hours at the end of the day lying in bed on their phones reading relevant articles like we do. Once they have pragmatically determined the best value for their money they will only hold it as long as feasibly responsible, maximum 3 years, then it is liquidated.

April tax increase on all fuel burning cars

Most of you are aware that there was a tax increase on all fossil fuel burning cars including hybrids, in April this year. This was the first shot across the bow preparing us for the coming EV (electric vehicle) market.

Within the next 36 months, we are slated to have over 3000 EV charging stations placed around the state. The transportation minister has projected by 2030 that new cars sales will consist only of EV vehicles, a bit optimistic perhaps but you see where the trend and the market is heading.

The April tax hike was unpleasant, new taxes always are, but we’ve endured them before and we are adjusting, however that is not the whole story this time. The tax hike was not a singular dimension event as consumers suppose. What comes next in this story is what has the professional fleet managers concerned.

When there is a storm there can be damage but once it passes in some parts of the world, like where I live in the Jordan Valley, what comes next can be more dangerous even deadly – the flood waters.

Dramatic metaphor yes but it deftly illustrates our point. The April tax hike was the storm that we wish we did not have to endure; it came and went. You may now ask, what then are the flood waters that are coming which will cause more problems than the storm? The flood waters are that once the EV’s arrive, the new generation cutting edge technology cars, the ones not burdened by the additional taxes levied on fuel burning cars, the ones promising us less expensive operating costs, there presence in the market makes predicting the future value of the fuel burning cars bought today impossible. The uncertainty of the next 3 to 5 years has caused irregular movements among the major importers and the large leasing companies.

Up until now the fleet managers were able to play around with their end of contract value projections on the stock they were buying and holding to lend out to their customers. There were models they could take liberal positions on regarding their future values to stimulate sales. Until now they could make up any deficiencies on the over valuations of their stock when the time came for their inventory to be retired and retailed to the general public in 3 or 5 years’ time – can’t do that anymore. They are now forced to be more realistic, conservative if you will, even at the expense of losing sales, in their approach to these future value projections. No one knows to what extent the depreciation percentages will increase only that they most certainly will.

Another trend that has come into vogue with fleet managers is offering current lease contract extensions. The lease company wants to retain their clients of course, but if they can delay making another purchase of a new car for a couple of years this is preferable to them, it gives the market a little time to stabilize.

So the take away for us as individuals and what we try to convey to our potential clients is that if the professional fleet managers are concerned and have changed previous business practices shouldn’t we be questioning our positions as well? Is it really a good time to buy a new car?

Keep in mind the lease companies have tools at their disposal to help them overcome the future liquidation processes, as the market values move against them. They have large marketing budgets, commission sales personnel, and retail stores where they have the ability to offer financing and extended warranties to increase a vehicles perceived value, we as consumers don’t.

New cars will always have a place in our lives for sure, there offer us advantages that used cars cannot provide. But maybe this time, even if you have never seen yourself as one who would lease a car, consider making an exception for the next 3 to 5-year cycle.

Allow this new and exciting time in automobile history to come into existence and begin the process of stabilization before making any long-term purchasing commitments.

Km Restrictions in Purchases as well as Leasing

Did you know that lease contract km parameters/limits are set by the Levi Yitzak purchase catalog, not the lease company?  This may sound like a distinction without a difference, but  we assure you this is not the case. 

Possibly the number-one myth surrounding a purchase versus leasing of a car is that when buying a car there are no km restrictions. This is indisputably NOT the situation.  There is only one way to avoid km restrictions: buy a car, and at the end of its life, strip it of its registration thereby taking it officially off the road and selling it for scrap metal.  

Full disclosure —  once a car reaches its’s 10th birthday the kilometers become less of an issue, since most of the value the car is gone by that time, and it will be a cash sale anyway.  This will not, however, stop the prospective buyer from using the overages in negotiations, although at a diminished capacity.   

If, however, you are in a new or new-ish car, the 20,000 km per year average is always in effect. The only difference lies is in how and when you will pay for these extra kilometers.  In a lease, you will pay contractually;  in a purchase, you will pay it effectually (adjustment to future value using the Levi Yitzak catalog at point of sale).  The leasing companies are simply setting themselves up for the eventual sale of the vehicle you leased once it’s completed its contract period. 

You are allowed to increase the kilometers per year, which will increase the payments slightly since the typical depreciation is going to be accelerated by the additional kilometers, but it is preferable, and more economically feasible, to adjust the contract payments before instead of paying the penalty at the end.  

We Are Not….But We Are…

We are not a new car dealership,  pushing our one-and-only line of cars, convincing people we have the best value in the current market.

We are not an independent dealership selling what we happen to have in stock today from last week’s purchases and trades.

We are not a leasing company competing for market share, promoting lease packages with higher profit margins designed to make the client feel good but, on the backside, knowing the client is now exposed to unnecessary risks and does not really have what he or she thinks they have.

Our stock is our reputation, our word, and our knowledge of what to look for and look out for in the very confusing and changing automobile market.

If you look at our site, you may get the impression that we are only about leasing; that is by design. We know that 7 out of 10 people we come in contact with will benefit from leasing, so our website and company is devoted to assisting persons falling into those averages.  But when we encounter the 3 out of 10 that will be better served by other methods of car ownership, we advise them to look elsewhere, even making recommendations.  We are Olim, and we want to do our small part in assisting fellow Olim to have a successful transition into their new life in Israel.

The Second Most Expensive Item in Your Personal Portfolio

Taking on the responsibility of a car (purchase/lease/rental) is not like buying a ₪ 400 electric appliance.  Paying ₪ 60 more for an appliance in one place over one  that  could be purchased elsewhere will not financially damage you. 

  • By contrast, a reliable car, for most, will require long-term financing, and is the second most expensive item in our small “family corporations”.
  • It’s twice as expensive here as we were accustomed to from our previous homes.
  • It’s a continually depreciating capital asset.

To exacerbate this depreciation problem, the country is now on track to go all electric by 2030, meaning that everything we are buying today will quickly become outdated.

April 1st  of 2019 marked a massive change in the automotive world.  There was a major tax increase on all fuel-burning cars, even hybrids.  The general public was not excited about this, understandably, but we have endured tax hikes before. This is nothing new to us or the market. But that increase is only the tip of the iceberg of what occurred.   

Professional fleet managers know and reacted to what this tax signaled.  They were forced to lower future value projections on their current and short-term future inventories.  This tax’s sole purpose is to set the stage to provide future incentives (in 36 to 48 months) to move the market, away from the internal combustion fossil fuel burning engine, into the coming EV market – on track to be completed by 2030.   

Check tire pressure on a monthly basis

Correct tire pressure is a major safety concern, and will give you maximum fuel efficiency.  Tires will lose approximately 1 pound of pressure PSI per month, so you should make it your monthly routine to check your tire pressure.

The correct tire pressure is not listed on the sidewall, as some people think.  That is the maximum pressure that the tire can be inflated to.  The easiest place to find the correct tire pressure PSI is on the sticker on the driver’s doorjamb, although you can also find it in your owner’s manual.  Pay attention –your car may have different ratings for front and back pressure, please check the diagram.

The best time to check your tire pressure is in the morning, while the tire is still cold.  The definition of cold is that the car has been parked for at least three hours.  The reason the morning is preferable is because there is no chance that one side of the car’s tires have been heated by the daytime sun.  

Low tire pressure, besides costing you fuel efficiency, can be very dangerous. Low-pressure tires create more heat and therefore make the tires more susceptible to exploding, especially in hot weather, not to mention the accelerated deterioration of the sidewalls.  It also causes poor handling as the sidewalls will be flexing more, especially noticeable on cornering. 

Overinflated tires will put more pressure on the centerline of the tire, therefore causing it to wear quicker, as well as causing you to lose some connection with the road, since the outside edges of the tire might not be making full contact with the road surface. 

If you live within 1.5 km of a service station that has a compressor with a built-in pressure gauge, you can check your tire pressure there in the morning and get a correct reading.  If you live further than 1.5 km, it would be best to invest in a tire pressure gauge.  They are relatively inexpensive.  Take your tire-pressure reading in the morning and record each tire’s reading independently.  Then when you are at a service station, you can adjust the pressure according to your morning readings.  NOTE: After 1.5 km of travel, the service-station pressure reading will be higher, therefore incorrect.  

Happy driving – Keep the shiny side up and the greasy side down. 

SUV’s / Crossovers Capturing Our Imaginations

SUV/Crossovers, above all, capture our imaginations. There is a promise of possibilities; the promise of outdoor adventure, doing inspirational activities, and helping us connect with the life we want to lead.

SUV is a term we use, but today’s cars are more crossovers than SUV.  An SUV was originally built on a truck platform; therefore, they tended to be on the larger side and not so fuel efficient.  Today’s Crossovers are built on car platforms (unibody), which are lighter, more maneuverable, and very important here in Israel because they’re easier to park.

So, we get the rugged and sporty SUV look in a more practical vehicle package because let’s face it; for the most part, it is going to be driven on a flat, paved road, air conditioning on, Spotify playlist kicking out tunes on the media system, the young ladies voice on Waze telling us to turn right in 2 km, Mobileye reminding us we did not use our turn signal to change lanes, all the while sipping on a latte.

There is also the prestige effect — you don’t “sit down into” as one would in a sedan, as much as you “step inside” a crossover/SUV.

Safety:  They are not necessarily safer than sedans of comparable weight class, but here is a more confident feeling.  This is because you are raised higher off the road, giving better visibility.  But this effect is waning somewhat as more people are driving crossovers, so the average vehicle height is rising.

Take one for a test drive if you haven’t already, they are fun to drive!!

Still paying for cars the same way they did 100 years ago – insanity

It’s better to pay for the cars use not its cost.

Perhaps this 1919 Chevrolet is one of the first cars ever financed. Our cars today have advanced and matured tremendously, yet we are still paying for them the same way they did 100 years ago.  Why, it really doesn’t make sense, it calls to mind Albert Einstein’s description of insanity “doing the same thing over and over again and expecting different results”. Every day clients call iAnglo Leasing asking for help to get out of their finance contracts or assistance in selling their cars.

The better way is to pay for the cars use not its cost, here is the proof.  Using the “national car of Israel the Mazda 3”, as an example consider the 2012 model, it celebrated it’s 3rd birthday on January 2015. In its first year on the road it lost 16.59%.  We are programmed to accept that loss since it must undergo its initial new car depreciation.  But why did it lose 13.86% in 2014?  Depreciation rates are supposed to slow significantly after the first and second year are they not?

The new 2014 Mazda 3 last year lost 18.75%, that’s 24,000 NIS or 2000 per month, that’s expensive.

Now if this whole picture is not blurry enough consider what happened between Jan1 2015 and Feb 1 2015 with the same 2014 Mazda 3.  In just 30 days it appreciated 2.88% (3000 NIS).  Did it suddenly become a classic car, everybody knows only classics hold or appreciate in value?  No this was an arbitrary market adjustment.

You see taxes were raised Jan 1 on all new cars sold in Israel, so since the new cars are going to be more expensive the used car dealers lobbied Levi Yitzak the publishers of the “mechiron” catalog to artificially inflate used car values to make up some of the losses last year and increase profits on their sale, nice don’t you think?

All the more reason to lease a new or late model used car.  Leasing establishes a payment that is good for you to use the car during that period, enjoy its warranty protection, and its future value guarantee.  If at the end of the contract, the market has cooperated you can buy it, if it has been brutal, as it was last year, give it back to the lease company and take another one.

Pseudo leases in Israel

ImageWe received a request for clarification last week regarding the pseudo leases offered by Israeli dealers.  Since this is a common question we decided to post the reply in a blog.  We have paraphrased the request and split the request into sections to enable us to elaborate on points individually.

Question: A relative recently did a dealer purchase.  He mentioned his deal was apparently similar to a lease where he could put down 15-30% of the price.

Response:  15-30% down why so much?  The whole concept behind leasing, or in this case similar to leasing, is to conserve cash.  A real American style lease should require no more than 8% down for most cars offered today.

Question: After the 30 monthly payments the loan balance is about 50% of the original price, but the expected value is perhaps about 75%. 

Response: For a salesperson to make the suggestion that a car possibly will enjoy a 75% retention of its original value is pure salesmanship, it’s laughable.  The most aggressive residual value issued from leasing companies today (who are managers of large fleets and know the market intimately) is only 64% and this is on just one specific model from one manufacturer.  The average forecast residual amount at the end of 30 months for most popular cars is 56-60%, a long stretch  from a suggested 75%.

Question: The dealer guarantees to buy it for market price

We underlined this portion in the question for this is a remarkable promise. Anyone in Israel who has attempted to trade in their car when buying a new car from a dealership, has been exasperated by the amount offered for their trade-in.   This will be the same scenario; the new car dealer cannot pay the market value.  They have to sell the car to a used car facility when you trade it in because dealers here in Israel do not have used car departments.  The used car company even if affiliated with the new car dealer franchise is a separate company and as such needs to buy from the new car dealer at a low level to make a profit.  The used car facility doesn’t have any connection to the selling dealers promise.

Question: use the net proceeds toward a new vehicle and start over, or pay the loan and own the car outright, or or sell the car on his own.

Response: “net proceeds” there cannot be net proceeds; “towards a new vehicle” this is the catch. You are now trapped you cannot move to another make.  You want the guarantee buyback at his stated fair market value; you must stay with his brand.  What if in 30 months you no longer need a car?  Maybe you now work for a company that supplies a vehicle; your promised guarantee won’t work.  What’s the dealer going to do with a used car that he supposedly paid fair market price for?  What if you decide to buy used next time?  Same problem no guarantee.  This promise only can be useful if you intend to purchase new from the same manufacturer and from the same dealer.

Summary:  You have really only two real options when you take this pseudo lease.  The first is to sell the car yourself but then that is not really a guarantee.  Second is to buy new from your selling dealer again and on paper he can show you the numbers for your trade that you are looking for.  This is possible by holding on the sale price of the next car that you’re going to be taking. Dealers all over the world have been doing this for decades but there comes a time when you the customer will find you are unable to make this type trade again.  Eventually you will be so far “in the bucket” “upside down” that your only option is to sell it by yourself and maybe even then at a loss.

Dealers new and used cannot offer fair market value for cars they all consider trade ins a service.  To stay out of the fray and enjoy low monthly payments the real solution is a closed end American style lease. We have a  30 minute video explaining leasing at this link if you want to learn more.