Cubans Hoping to Buy New & Used Cars Despair As Government Stores Add 400% Dealer Markup

Last Friday, for the first time since the communist revolution there more than 50 years ago, Cubans were able to buy new and used cars without government permission, as state owned dealerships started retail sales, but residents of the island were disheartened by markups of 400% or more that the government is framing as a luxury tax. Cubans walked away from the Havana Peugeot dealer, a state-run enterprise, shaking their heads in disgust after seeing sticker prices ranging from the equivalent of $91,000 for a 2013 206 to $262,000 for a 508. For comparison, in the UK most 508s sell for less than $42,000. That’s quite a substantial additional dealer markup. Eighty percent of employed Cubans work for the state and the average wage in the country is about $20 a month so the cars area still out of reach to the vast majority of Cubans. The tens of thousands of small private businesses that have sprung up since the introduction of economic reforms have a great need for vehicles, but they too have been priced out of the market. At those prices, don’t expect Cuba’s fleet of old American iron to be taken out of service any time soon.

Roberto Gonzales, who works for the government as a driver, while walking back to his 1950s vintage Plymouth from the Peugeot dealer told Reuters, “I earn 600 Cuban pesos per month [about US $30). That means in my whole life I can’t buy one of these. I am going to die before I can buy a new car.”

The scene was similar at a state-owned used car store on the other side of Havana. More than a hundred former rental cars went on sale, priced from $25,000. Disgust was joined with anger at the prices. Cesar Perez, an artist looking at a $25,000 2005 Renault that can usually be bought outside of Cuba for about $3,000, expressed despair that his family could ever have an automobile. “These prices show a lack of respect for all Cubans. What is here are wrecks. I now have no hope of getting a car for my family.”

Guillermo Oropeza said,“at that price you can buy three cars on the street .”

A teacher, who wouldn’t give her name, looked at the prices of the used cars and sarcastically yelled out, “Are there any bicycles?” as she stomped away. Some car shoppers were afraid that the high prices were a trap so the government could accuse those with sufficient funds as guilty of economic crimes.

Under reforms introduced by Cuban president Raul Castro in 2011, Cubans could buy and sell used cars from each other, but before Friday they needed government authorization to purchase a new vehicle or a second-hand one, usually a former rental car used in the country’s tourism industry, from state retailers, the only authorized car dealers on the island. Before the 2011 reforms, only those cars and trucks that were already in Cuba before the 1959 revolution could be sold on the open market. No private ownership of vehicles imported after the revolution was allowed by the regime. That’s the reason for the country’s fleet of 1950s and older cars, many of them American. In addition to being a rolling car show of American iron, Cuba is also effectively a museum of Soviet-made cars. The former U.S.S.R. was the Cuban regime’s greatest benefactor.

Outside of those Buicks and Ladas, newer cars in Cuba are likely to be government owned. Prior to the latest reforms, when the state was done with those newer cars, they were typically sold at relatively low prices to favored individuals like Cuban diplomats, doctors and teachers who worked abroad for the state.

The Cuban government still maintains a monopoly on the retail sale of new and used cars. There are about 650,000 cars in the country, about half privately owned and the other half owned by the state. The ban on importing cars and regulations requiring government approval has meant that only one in ten Cubans has a car, truck or motorcycle. The other 90% of Cubans rely of an increasingly deteriorating public transportation system. The government is rationalizing the high car prices as luxury taxes that it says will go towards improving public transit.

While the prices at the government car stores are exorbitantly high, the new and used cars that change hands privately in Cuba also have grossly inflated prices because demand so greatly outstrips supply.

For those who want to self-import a new or used car and avoid the markup, a privilege likely to be reserved for diplomats, foreign owned businesses operating in Cuba and select Cubans favored by the regime, will still need government permission.

The supposed liberalizing of car sales was one of more than 300 reforms approved in 2011 by the Communist Party, Cuba’s only legal political party. The reforms allowed more private initiative and less government control over personal property like homes and cars.

The result was a flowering of small businesses in Cuba, which along with thousands of farm, construction, transportation and other types of cooperatives, would have benefited from the opening up of car sales. Access to vehicles to transport their goods and services would have helped those enterprises’ and Cuba’s economic development, but the high car prices has put those vehicles out of their reach.