Could car exports to Israel be Erdogan’s next target?

International politics has never had much effect on the Israeli car market. For most customers in Israel, a car is a consumer product bought for its utility, produced by a global industry, and although the location of the manufacturer may have some status value, no great importance is attributed to the country in which the vehicle is actually made or its relations with Israel.


Two proofs of that are the impressive success in the Israeli market of vehicles assembled in Turkey, and the dizzying rise in sales of vehicles from China, which currently take about a quarter of the market. But the international crisis that Israel has become embroiled in since the outbreak of war in October last year Is not like previous crises, and it now threatens to become a factor in the balance of forces in the local vehicle market.

Let us begin with our near neighbor, Turkey, which is a large manufacturer and exporter of motor vehicles. There are dozens of factories in Turkey of global manufacturers of private cars and of commercial and heavy vehicles. These factories, mainly of brands like Toyota, Hyundai, and Renault (and in the past Honda as well) have made Turkey one of the largest exporters of vehicles to Israel in the past two decades.

In 2023, Turkey maintained its position as the fourth largest exporter of vehicles to Israel, with over 27,000 new vehicles delivered. Previous political disputes between the two countries have had almost no effect on the export of vehicles made in Turkey to Israel (the Marmara affair, for example), and the Turkish government has good reasons not to drag the country’s automotive industry into the current dispute.

The main reason for that is the sensitivity of the global manufacturers to economic and political instability in the countries where they assemble vehicles, and to restrictions on trade in those countries. The construction of new vehicle factories, and even the opening of production lines for new models, are considered big wins for any country, particularly for developing countries.

Such factories contribute to prestige, employment, exports, and GDP, and draw further investment by the automotive industry. In the case of Turkey, the automotive industry makes a critical contribution to its problematic economy, with over half a million jobs and 2% of annual GDP. Logic therefore says that Turkey will carefully safeguard the interests of the vehicle manufacturers.

Israel specifically is among the ten largest export destinations for the Turkish automotive industry. In 2023, the pre-tax value of vehicles exported to Israel was $328 million. In addition, most of the vehicle factories in Turkey are owned jointly with local businesspeople, some of whom have considerable influence on the government. It is therefore not surprising that the government of President Erdogan has so far refrained from making explicit mention of vehicle exports to Israel in the context of the new trade restrictions announced last week.

On the other hand, Erdogan has shown in the past that he is capable of making impulsive, unilateral decisions on the automotive industry. The outstanding example is the restrictions imposed last year on imports of electric vehicles from China to Turkey. The Chinese vehicle manufacturers were taken aback to discover that, overnight, the Erdogan government had imposed an import duty of 40% on their products, instead of 10% previously, in order to improve the competitiveness of Turkish electric vehicle manufacturer TOGG (which, incidentally, uses Chinese-made components). Later on, almost impossible restrictions were imposed on local importers of Chinese vehicles.

Chinese media responded sharply, and Chinese government sources said that this was “an unpredictable and unprecedented step.” Chinese government officials threatened retaliatory sanctions and an appeal to the World Trade Organization, but Turkey did not change its stance.

In the current situation, in which Turkish public opinion is exposed to an unprecedented public and media campaign against Israel, which is exploited for internal political purposes in Turkey, the Erdogan government is under pressure to tighten the sanctions. The Turkish press even published a blacklist recently of Turkish merchant ships that carry exports to Israel.

The possibility therefore cannot be ruled out that the Turkish government will expand its economic sanctions on Israel to include the export of Turkish-manufactured vehicles, for example by imposing a 100% tax on all products exported to Israel, a possible measure mentioned recently by the Turkish foreign minister.

Israeli vehicle importers have ways of coping with such disruptions, such as switching to indirect imports of Turkish-made vehicles, through arrangements with the manufacturer or the manufacturer’s dealers in other countries to buy them. Several parallel importers already use this method to bring Toyota vehicles to Israel. But if the threat is realized, it will be another layer of logistical complication in importing vehicles to Israel, which started with the attacks on shipping by the Houthi rebels in Yemen.

Is the link with Israel becoming a burden for China?

Another political front that is liable to disrupt the supply of vehicles to Israel is relations with China. In the past two years, the Israeli vehicle market has conducted a stormy romance with the Chinese automotive industry, and imports of Chinese-made vehicles have grown by leaps and bounds, to 47,000 units last year. The value of imports of vehicles from China last year is estimated at $650-750 million, representing a significant slice of Israel-China trade.

From a Chinese point of view, Israel is still a tiny market for an industry that exported more than 4 million vehicles last year. But until recently, Chinese manufacturers considered Israel to be a prestigious export destination, as a sophisticated Western market with European standards, and an ideal test bed for brands. Several Chinese manufacturers therefore gave priority to exporting vehicles to Israel, and at the same time gave wide exposure in the Chinese media to their activity in Israel and their sales achievements in the country. In some cases, exports to Israel were leveraged as a business achievement for the purposes of raising investment and promoting offerings of securities.

In recent months, however, there have been signs of a change in the atmosphere. Chinese-manufactured vehicles are still imported and continue to be sold in Israel in respectable quantities, but the mood reflected in the major media outlets in China is downright anti-Israel.

A prominent source in the Israeli automotive sector told “Globes” that business was as usual, and that “the Chinese know how to separate between business and politics.” At the same time, however, there has been a noticeable attempt by Chinese manufacturers to lower their media profile concerning exports, to avoid publication of sales in Israel, and to avoid reporting the signing of new export agreements with Israelis. That is to say, the connection with Israel weighs on their image instead of being an advantage. Should the situation worsen, it is not inconceivable that we shall see delays in the introduction of new Chinese models and brands into Israel.

Published by Globes, Israel business news – – on April 15, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Source link


Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button