Car leasing is on the rise, but is that a good thing? Israel’s spending on private consumption is increasing, but we’re still in a unique position because household debt in this country remains much lower than in developed countries.
Household debt is at 42% of GDP, and rapidly rising wages in recent years has helped Israelis pay for their shopping sprees without having to take on much debt in the process.
Housing credit is rising by 4%, and loans by banks are up from 2.9% in 2013 to 4.13% in 2017. Wage increases are helping Israeli’s live a low-debt lifestyle, but when wages stagnate, I fear that many will be stuck in debt that they may not be able to afford.
Our lifestyles are changing, and we can see this in the auto industry.
If you go back to 2009, you’ll find that auto leasing was reserved for executives and wasn’t common among Israelis. At the same time, 80% of new cars in the United States were leased privately. We’re talking about a time when car leasing in Israel was truly in its infancy.
Studies show that borrowers that pay for their vehicles through the entire term often, over 60% of the time, choose to upgrade to a new vehicle. This trend means continual monthly payments because the borrower doesn’t want to pay the remaining price for the vehicle. Keep in mind that a 20% – 40% down payment was the norm on a lease.
The Defense Ministry is even leasing vehicles, announcing a 3,500 vehicle lease that will be the largest single lease in the country’s history. The army also plans to lease an additional 5,000 vehicles, with vehicles being smaller and having a sales price of NIS 120,000 or lower. The IDF will save money, but normal citizens that are leasing will not.
Leasing keeps the person in debt, and if they do decide to pay off the remainder of the vehicle, they’ll free themselves of this debt.
But that’s not the trend we’re seeing. People are staying in their leases, opting to move up to a new vehicle when their lease term ends. The rise in wage growth allows people to live with an auto lease comfortably – for now.
Sooner or later, these same individuals may find themselves with a lease they can no longer afford and without the transportation they need.
Israel’s car market remained lower in the first-quarter; 29,037 vehicles were delivered to purchasers in March alone. In the first three months of the year, 94,340 vehicles were delivered, 4.3% slower than in the same period a year prior.
The strength of the shekel helped pad a forecasted drop in sales in 2018. Industry experts note that there has been a slowing trend in leasing companies buying new vehicles, so maybe the trend of new leases will start to show itself in 2018. But until the trend of buyers choosing to stay in leases starts to drop, I will remain concerned for the eventual fall in the shekel’s strength.