27 August 12 19:04–Israel’s luxury car segment, worth $250-350 million a year, has always been highly competitive, and in the past few weeks it has become a real battleground. Salespeople have been applying steady personal pressure on every potential customer of theirs and their competitors, advertising budgets have soared to new heights, “special” sales days are being held almost monthly, and new premium models land here daily.

All this turmoil is shoved into a narrow marketing space with a glass ceiling of less than 10,000 sales a year, including personal import vehicles, representing 4-6% of the car market as a whole. Although the entire market grew last year, the luxury segment is still small in comparison with its relative size in developed Western countries.

Now, however, the glass ceiling is about to be smashed, with the potential of expanding sales in the prestige segment to 10% of the market and even more. The expansion of the prestige brands in Israel will not happen upwards, among the few very wealthy customers, but rather downwards.

This week, for example, Mercedes importer Colmobil is due to announce the planting of the prestige German brand’s first flag in price territory that, according to estimates, will be around NIS 170,000-180,000, with its new A-Class series. It will thereby double the number of its models in the “accessible” price bracket, which it recently entered with the larger B-Class, also priced below NIS 190,000.

This new policy will set Mercedes against competing prestige brands already in the NIS 120,000-180,000 price bracket, such as Delek Motors, with the Mini brand and the BMW 1 Series, Lexus, with the hybrid CT200, Audi, with the A3 and A1, and soon Cadillac as well.

The manufacturers stir the pot

The current competitive heat in this segment has three causes: pressure to raise profitability, which is much higher in the luxury segment than in the popular cars segments; a battle over prestige born of old, sometimes highly emotional, rivalry between the importers competing in this segment; and pressure from the car manufacturers themselves, which are setting aggressive sales targets for their Israeli agencies.

The manufacturers have played a key role in the entry of the importers into the new price arena. The German car manufacturers have always kept their importers in Israel on a tight rein, closely monitoring their sales, their competitive positioning, and their profits. Colmobil’s ability to sell a new Mercedes for NIS 170,000 undoubtedly stems from a decision by Mercedes in Germany not leave the field vacant for BMW, which recently cut prices for its Israeli importer and allowed it to stake a claim in new, virgin territory.

One may certainly assume that a substantial factor in the manufacturers’ decision to lower prices is the heavy pressure from personal imports of prestige vehicles, especially the possibility of importing personally (and soon even “personally commercially”) luxury German cars from the US. As far as the manufacturers are concerned, this is a nightmare scenario, which undermines the geographical price discrimination policy that allows them to make much higher profits on cars sold in Europe. One can therefore say, with a degree of irony, that personal imports have been one of the biggest gifts that the official importers of the luxury brands to Israel could have received…Read More>>

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