Car market in Cuba: Antillean surrealism

Until September 2011 , when Decree No. 292 of the Council of Ministers and other complementary ministerial resolutions entered into force, Cubans could only buy or sell cars manufactured before the Triumph of the Revolution , that is, before 1959 , many of them from the U.S. , popularly known as ‘ almendrones ‘.

As part of updating the economic model of the country, the new provisions authorized the transfer of ownership of motor vehicles through the purchase; sale or donation among citizens living on the Island this answered one of the old claims of the Cuban population.

The decree, however, did not satisfy everyone. While the sale of vehicles between individuals, retail thereof, regulated by the state, was limited to a certain group of people according to their “occupational categories ” , as referred to in document.

Thus, a portion of the Cuban population was excluded from access to the retail car market – let’s say mainly relatively modern and second-hand cars , while not working at subsidized prices , these are at least ‘reasonable’ .

With that, a parallel market for private people was created, with prices outside of state regulations, in an environment conducive to speculation, illicit enrichment and corruption.

The reason for the initial constraints was never known. It was not clarified or discussed. Many people, after a deductive exercise, spoke of the poor availability of cars or traffic problems. Others justified the existence of the captive market in the need to provide some stimulus to a certain sector of the population. In any case, there is no certainty about what the causes were.

It took more than two years for these measures to be modified. In an article published in Granma, December 19, 2013, key changes and the reasons for them were announced.

In the text, summarizing the main elements, the opening of the retail sale of motor vehicles to individuals was announced, with prices similar to those recognized in the market among private people. With the revenue collected, the text reads, a fund for the development of public transport across the country would be created.

On the other hand, authorization letters issued by the Minister of Transport were made void, for those who already would only mean they have a priority when purchasing. The proposed causes of these changes were, literally, the following:

” The low availability of cars, the restriction of this facility to a small group of selected occupational categories and the existence of another market selling at prices several times higher than those of established trading company , generated discontent , dissatisfaction and , in many cases , led to this mechanism , besides bureaucratic , to become a source of speculation and enrichment . “

Finally, on December 31, 2013 Decree No. 320 of the Council of Ministers was issued, accompanied by additional resolutions of the ministries of Transport and Finance, through which the new regulations were established for the transfer of ownership of motor vehicles.

However, in this process there are many unaddressed intricacies. What happened under the previous regulations? What are the characteristics and market prices between individuals? What will these new regulations bring?

Decree No. 292: car sales and authorization letters

Decree No. 292 of the Council of Ministers, published on September 27, 2011 in the Official Gazette No.31 of the Republic of Cuba, with its accompanying resolutions, allowed and regulated the sale of motor vehicles between Cubans and foreign permanent or temporary residents on the island, and the mechanism for access to the retail sale of motor vehicles by the state.

The procedures for trading between individuals were relatively simple and practical. They agreed on prices. For each operation the taxes were levied. This minimum reference values were established, according to the make and year of manufacture of the vehicle. Precisely these are the prices that usually reported in every legal operation, but it is known that the transaction between individuals much higher values are handled, obviating the payment of the real value of taxes.

Beyond the tax issue, the car market for private people works relatively normal, a fact that is not happening with the retail sector.

According to the regulation, access to the retail market was limited to a group of people from certain occupational categories, basically, teachers, scientists, health workers, artists, writers, athletes, tobacco planters, fishermen, and sailors, technicians that worked on the outside or other income that would justify in freely convertible currency.

For some reason still unknown, were excluded from this category those who worked on missions abroad through the Comprehensive Health Program or those working in Venezuela, Bolivia, Nicaragua and Ecuador. When workers who provide a substantial amount of revenue to the State, it is noteworthy that they were denied this possibility.

However, belonging to one of the privileged occupational categories did not guarantee you could obtain a car. To do this, you must perform a set of steps that usually ended in a letter of authorization by the Minister of Transport, which placed the individual at the gates of his awaited vehicle.

The bureaucratic procedure in question involved the head of the workplace, a representative of the ministry concerned, the Ministry of Transportation, a certification of income earned by the individual in a maximum of seven years and a statement issued by a national bank on which that availability of the amount needed for the purchase. So, months later, and if there were problems, the famous letter, where the maximum amount is specified that the individual could spend on buying a vehicle is obtained. It will never be less than 4 000 CUC or more than half the certificated revenue.

Letter in hand, and with a time of two years to make it effective, you only need to wait to make a purchase. It impinged authorize consecutive numbering and vehicle availability. Thus, a person could wait over a year to buy a car, usually used and prices could range from 1,900 to 10,000 CUC or more depending on vehicle make and condition.

However, these values were established in a captive market and availability was low, had no impact on prices driven by transactions between individuals, the latter being much higher.

Under these features the predictable happened. While there were many people who bought their own cars, some decided to sell his letter. Others bought their car in the retail market and then sold at a much higher price. With the money, for example, you could buy a car for less benefits or more ancient, repair it in your home or buy another, and invest in a particular business. There were also many more that were waiting to give effect to that authorization.

The situations described above were prompted by flawed and restrictive regulations that favored the differentiation between prices regulated by the state trading system and parallel operations between individuals.

The market for private vehicles

The internals of operations for private purchases are one of the determining factors in the behavior of the car market of the island. These, influenced by various elements, have no official references. The best way to access them is through the informal markets which best showcases today are ranked Internet sites as Revolico , Porlalivre or Cubísima , just to mention a few.

In these spaces, car sales ads often specify where issues such as the price and the make are daily published. Analyzing these listings speak loudly to us about this market and the prices that are handled in it and that, in turn, are references for today newborn regulations.

For this 3705 Porlalivre website advertisements published primarily between September 5 and December 20, 2013 were analyzed. From these samples we obtained some evidence.

In Cuba, the average price of a vehicle, taking as reference the median statistic, is about 14 000 CUC. Ladas, Chevrolets and Fiats are the most common cars sold at this price; all models are several years or decades old. The cheapest car model found was Polski Fiat 3500 and the highest price, Ferrari 200,000 CUC.

Figure 1: Cars offered decades as manufacturing

In the ads you can find cars from 1914 or 1929 until 2013 models. However, stand out in number offers of cars made in the 50s, years of entry of most makes and models of today called ‘ almendrones ‘ , our everyday taxis . Also there are many car sales ads of the ‘80s, a time of Soviet influence, as well as more recently manufactured vehicles from the late ’90s until 2010, perhaps those from the retail market.

Regarding price level stands out that, for similar makes, the value of a diesel vehicle is usually higher than that of a gasoline engine. Similarly occurs with mechanical models, which are rated better than their automatic peers.

Most advertised makes are, in order, Lada, Chevrolet, Fiat, Ford, Peugeot, Daewoo, Hyundai, Kia and Toyota, but there are ads selling more than 40 different ones.

Figure 2: Most offered makes

Another notable issue is the price range in which makes and models move. So at 10,000 CUC or less are sold mainly Lada, Chevrolet (older models), Polski Fiat, Ford (older models) and Moskvitch. Between 10,000 and 20,000 Lada, Chevrolet and Ford are maintained, while appearing older models of Fiat and Daewoo Tico.

Between 20 000 and 40 000 are fewer cars, hardly any models of Soviet times but we can find some other Chevrolets. In this range the brands and models that are advertised are mainly those that are most commonly sold in retail sales of the state.

Above 40 000 and in a smaller volume, are higher -end car, or sold in better condition, some may even be considered ‘luxury’: Mercedes Benz, Audi, and BMW. Many also sold in the retail market, but much less frequently and at higher prices.
Figure 3: Most offered makes

With all these indications no one would hesitate to argue that we are witnessing a totally surreal market: decades-old cars and dissimilar offered amendments similar to those of modern cars, used cars sold at the value of the newer versions.

The new regulations

The article in Granma, prior to the amendments, raised interesting questions and some concerns.

This decision created uncertainty in those who, by saving part of their income earned in missions, contracts and other professional activities, which also obey the internationalist policy of our government, and possessed their letter of authorization. What that meant for them that the legal instrument, letter, ceased to be effective all of a sudden and just became a priority?

It was unsettling, moreover, that the new prices would be those recognized in the market for individuals, as if it happened , the State again refused , from a consistent pricing policy , to affect the surreal value of the car market in Cuba .

The answer came with Decree No. 320 and related resolutions. And it could not be any worse.

While selling cars was allowed and authorized the creation of the Fund for the Development of Public Transport, in the new regulations, in just two special provisions the authorization issued by the Minister of Transportation for the purchase were left without effect and the existing ones became a priority for the purchase of vehicles to prices that are to be set.

Thus, a group of important people for the economic, cultural and social development of the country, after months of paperwork and waiting went from having legal authorization to acquire a car to have a mere autograph from the Minister of Transport, since the ‘priority’ is not worth when you have to pay a higher price than the certificate in the letter, that is, half of personal income, at most, within seven years maximum.

Figure 4: Some of the new retail prices

As for prices, the resolution 543/2013 of the Ministry of Finance and Prices sets policy for the making of retail prices for new vehicles so as for used ones.

Figure 5: Evolution of the tax proportional minimum reference value, the price of new cars and use

For the first ones, an index of 8 on the store cost is set, not including the tariff, which means to increase fourfold or more of the above values, compared with the previous regulation whose index was 2 for cars and 1.5 for motorcycles and other vehicles.

For used cars, the most important in previous retail sales for its fairly affordable sector the previous regulation provided an index of 2 on the under depreciated value of the vehicle, to which the expenditure to place it at the sales points were added. For the new prices they will impose an index of 15 on the total cost in store. We are talking about an increase of 7.5 times.

Meanwhile, the minimum reference prices are set to implement transaction taxes, depending on the make and age of vehicles were increased 5 times.

So under these pricing policies we find the same Peugeot New Expert 2013 at 212 940 CUC or a used 2007 Hyundai Accent at 35 000 CUC, values, in many cases, higher than those handled in the market between individual before the new provisions.

Figure 6: Comparison of prices for car use

Total blunder

Something seemingly as simple as buying or selling vehicles in Cuba, incredibly, is still news. First was its prohibition and then for limited regulations that allowed private sales, but restricted the retail market to just a few. And now, some regulations could be an excellent alternative and were, from its pricing policy, is a total sample of mistake.

Many had hoped for a smart and mediated solution. But it was just hope. The facts were quite different.

It is hard to believe that we cannot find an alternative to that of those who work for the development of the country to have the ability to access, from authorizations already issued and justified and certified income to purchase a vehicle at a price right over the previously established. What confidence can they have on new decisions regarding these people who did not aspire to profit but to improve their living conditions?

How can you understand that after two decrees, the Government waives indeed to affect prices in an absolutely disproportionate market? How can anybody assimilate that a law is passed where prices are fixed at even greater rates to the existing market for private people and several times higher than those handled in the global market? We simply cannot understand it. Such inconsistency is unclear.

We still have the possibility of going out and move around in the impoverished public transportation or spend a portion of the salary of the month in a taxi. A taxi that is probably a Lada or almendrón , of which it was thought that prices would plummet and it may end up being worth more now . We have to keep going then on this island which they are bent on making increasingly surreal.

By: Yudivián Almeida and Elizabeth Perez

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