Israel’s leasing market, facing a downturn amidst economic challenges, fighting in Gaza and regional instability, has seen its automotive sector buck the trend. Despite the broader slowdown, car leasing remains steadfast, defying the market’s downward trajectory. Eugene Gerden and Alejandro Gonzalez report. 

Israel’s leasing market had been on a trajectory of growth until the military conflict with Gaza started in October last year. Since then there has been a slowdown in growth and a notable adjustment in growth forecasts for the leasing market as a whole, although car leasing has been less affected. 

Israel’s economy 

In February 2024, official data revealed a significant contraction in Israel’s economy, with a nearly 20% shrinkage in annualised terms during the final quarter of 2023, as reported by the Financial Times. This unexpected downturn came as the nation directed substantial resources towards its conflict with Hamas in Gaza.

The reported 19.4% annualised decline in gross domestic product (GDP) for the fourth quarter starkly surpassed analysts’ expectations. The economic downturn coincided with the mobilisation of hundreds of thousands of Israeli reservists following Hamas’s attack on October 7. On a quarter-by-quarter basis, the economy contracted by 5.2% compared to the preceding three months. The Central Bureau of Statistics attributed this sharp decline in part to the call-up of 300,000 reservists, who temporarily left their workplaces and businesses to serve in the military for months.

Despite the challenging economic conditions, Israel still managed to conclude the year with overall economic growth, albeit at a slower pace than the previous year. GDP increased by 2% in 2023 compared to 2022, a notable decrease from the 6.5% growth recorded the previous year.

The conflict triggered a substantial increase in government spending, which surged by 88% in the three months following the outbreak of war compared to the preceding quarter. However, consumer spending decreased by 27%, and both imports and exports experienced significant declines — 42% and 18%, respectively.

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Moody’s downgrade

In early February 2024, Moody’s downgraded Israel’s sovereign rating from A1 to A2 for the first time ever due to concerns about the ongoing war in Gaza and its potential prolonged impact on the country’s economy. The agency also revised Israel’s debt outlook to negative, citing the risk of the conflict spreading to the northern front against the Lebanon-based militant groupHezbollah.

Prime Minister Benjamin Netanyahu disputed the findings of the report attributing the rating downgrade solely to the ongoing war. He said about the report: “The Israeli economy is strong. The rating downgrade is not connected to the economy, it is entirely due to the fact that we are in a war. The rating will rise back at the moment we win the war — and we will win the war.” 

Despite the economic setback, Israel’s per capita GDP, traditionally robust in its technologically advanced economy, experienced a marginal decline of 0.1% in 2023, amidst a population growth of 2.2%.

The Economist reported in March that although some industries are bearing up since the conflict began – the tech sector, for example, is largely holding up, with some firms benefitting from an increase in military contracts – however, others are suffering: the construction industry is reported to have virtually come to a standstill and tourism figures have dropped around 80% from a year ago.

Equipment leasing 

The latest report by the London-based Business Research Company, titled “Leasing Israel Market Report 2024,” sheds light on the dynamics of Israel’s leasing market. The report indicates that from 2018 to 2023, the market witnessed significant growth, increasing from $6.61 billion to $9.1 billion at a compound annual growth rate (CAGR) of 6.6%. This growth was underpinned by a 5% annual increase in the country’s per capita GDP.

The period of economic expansion was marked by several contributing factors, including industrialisation, population growth, a surge in manufacturing activity, and rising disposable incomes. 

For instance, according to the Organization for Economic Co-operation and Development (OECD) Economic Outlook 2023, Israel’s GDP grew by 2.9% in 2023, with an expected further increase to 3.3% in 2024 (which was forecast before the events of October 7). This growth typically spurs demand for leasing services as businesses expand and require equipment and facilities.

However, with the onset of slow economic growth, the outlook for the leasing sector in the current year appears bleak. Nonetheless, amidst this downturn, the automotive sector, Israel’s largest leasing segment, has managed so far to defy the downward trend.

Auto leasing

Experts at S&P Global Ratings Israel noted that despite the ongoing conflict with Hamas, automotive leasing has continued to flourish. 

Matan Benjamin, Director at S&P Global Ratings, highlighted the sector’s resilience, attributing its success to a relatively low unemployment index within Israel. However, he also acknowledged the negative impact of the conflict on the tourism industry and short-term daily rental services, as well as the pressure on new vehicle sales.

The automotive leasing market in Israel is highly competitive and mature, with significant barriers to entry. Leased cars constitute approximately 90% of the corporate car fleet market, with the five largest players commanding 75% of the market share.

Sandler said: “In our view, companies can benefit from growth through private lease agreements with individuals, but these are still relatively small and new.”

According to Israeli government data, in 2022, there were a total of 3,433,030 private vehicles in Israel, and 6.6% (about 226,580) were owned by leasing companies. Of the new vehicles on the road in 2022, 22.1% (about 380,000 vehicles), were owned by leasing companies (about 84,000). 

In Israel, the five largest leasing companies own over 200,000 cars, with Shlomo Sixt, Eldan Transport and Alber being the three largest leasing and car rental companies. Other major leasing providers in Israel include Caspa Leasing, Mizrahi Tefahot Leasing, Isracard Leasing, and Shenhav Shlomo.

According to analysts, the development of Israel’s car leasing market is held back by the public’s perception of leasing being a luxury service and the high costs associated with vehicle ownership in general in Israel, which has very high import and government taxes. 

The Times of Israel reports that purchasing a car in Israel is notably expensive due to high government-imposed purchase taxes, which can increase the price by up to 83% for regular petrol and diesel (ICE) vehicles, typically ranging between 60% and 70%. 

In 2019, aiming to promote a shift away from fossil fuels, the government implemented a taxation framework favouring electric, plug-in hybrid, and hybrid cars. Electric vehicles initially benefitted from a low 10% purchase tax in 2020, rising to 20% in the following year and further to 35% by January 1, 2024. Hybrids have been taxed similarly to petrol cars since 2022.

Meanwhile, plug-in hybrids, which enjoyed a 55% purchase tax in 2023, faced taxation akin to regular cars from January 2024. Against this backdrop, transportation, energy and environmental protection ministries have issued warnings that a rise in purchase tax for electric cars will hamper Israel’s efforts to cut emissions. 

Technology and connectivity

At the same time, analysts expect that once stability returns to the region, growth in leasing services in Israel will be driven by more widespread internet connectivity and the introduction of 5G technology, including fibre network technology providing faster data speeds. 

There were 7.97 million internet users in Israel in January 2022, compared to 7.68 million internet users in January 2021. Increased internet penetration and new faster communication technologies providing better experiences enabled more people to get online and access online leasing platforms and services. 

In recent years analysts say more and more companies operating in the machinery sector have opted to purchase heavy equipment over leasing it. According to experts at the Business Research Company, businesses in Israel emphasise the higher total cost of leasing over the flexibility and options it affords. 

Observers anticipate that the Israeli government’s commitment to infrastructure development will bolster demand for construction machinery and equipment, stimulating the leasing market’s growth. The ambitious “Infrastructure for Growth 2023” plan, encompassing 228 projects with a total investment of 433 billion shekels (USD$117 billion) for 2023-2027, underscores this commitment. 

However, the imposition of strict limitations on the movement of Palestinian workers from the West Bank into Israel following the October 7 attack has exacerbated labour shortages in the construction sector. This shortage has posed additional challenges to economic growth, as reported by the Central Bureau of Statistics.

Furthermore, recent legislative initiatives, such as the Knowledge Intensive Industries Law, aim to incentivise investment in high-tech companies, including those in the automotive equipment leasing sector. Such measures are expected to bolster the leasing market’s growth trajectory.


The general outlook for business in Israel will be heavily affected by political issues: the Gaza conflict, whether tensions with Iran escalate into war, the continuation of attacks on shipping in the Red Sea by Houthi rebels, and the effect conflict in the region has on global oil prices. The IMF recently warned that increasing instability in the region is likely to have a long-lasting economic effect on the Middle East in general. All of these factors make the business environment more difficult to operate in generally and have the potential to negatively affect the leasing sector until some kind of stability returns to the region.

Despite these challenges, analysts anticipate growth opportunities in the leasing sector, particularly with the anticipated expansion of commercial electric vehicles (EVs). Additionally, the potential for growth lies in Israel’s start-up ecosystem, where demand for leasing services is expected to arise from the need for advanced equipment, although sensitivity to regional geopolitical instability remains a concern.

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