Cash for clunkers: Cuba’s crazy used-car market

 

Why it behaves like the prime-property market

 

THE ECONOMIST

 

HAVANA.- MULTIMARCAS, a car dealership on the outskirts of Havana, is not a conventional showroom. On a recent visit it contained one salesman and, despite the promise of variety in its name, just one car: a 2014-model Kia Picanto with no miles on its odometer. The price would cause the most spendthrift American or European to blanch: 68,000 Cuban convertible pesos (or CUC, each of which is worth a dollar). That is seven times what a Kia Rio, a similar car, of that age would cost in the United States, though you would be hard-pressed to find one that had not been driven.

 

It is not just virgin vehicles that are startlingly expensive. A Chinese Geely, listed in Revolico, a Cuban version of Craigslist, with “only 93,000km” (58,000 miles) on the clock, goes for 43,000 CUC. A used 2012 Hyundai Accent costs 67,000 CUC.

 

Cuba is famous for classic Cadillacs and Chevys that whisk tourists around, but Cubans would rather drive such banal automobiles as Korean Kias and French Peugeots, which are more comfortable and burn less fuel. Cuba may be the only country where the value of ordinary cars rises over time, even though they age quickly on the potholed roads. That is because demand is soaring while the supply is not.

 

Cuba’s communists have a complicated history with personal transport. After the revolution in 1959 they banned almost all purchases of cars (but let existing owners keep theirs). The government gave cars to artists, athletes and star workers. High-ranking employees could use the official fleet and buy vehicles upon retirement at a discount. Petrol was almost free.

 

Cuba’s hesitant opening of its economy allowed the car market a bit more freedom. Since 2013 individuals have been able to buy and sell used cars without official permission. New cars can only be sold in government-owned dealerships like Multimarcas. The island’s spotty internet access makes it hard for buyers to compare prices. Many find vehicles by word of mouth and through Revolico, used by individual sellers and wildcat dealers. Cubans download it via the paquete, a portable hard drive delivered by courier weekly to their houses.

 

The rate of car ownership, 20 per 1,000 people, is one of the world’s lowest. The government keeps a lid on imports. It has allowed in 2,000 cars a year for the past five years. But its cautious economic liberalisation has stoked demand. A new class of entrepreneurs, called cuentapropistas, is eager to buy, as are Cubans with cash from relatives abroad. So in the market cars behave more like prime property, whose supply is restricted, than depreciating machines. One dealer says he has bought and sold two cars in the past year for a profit of 20,000 CUC, far more than his 25 CUC-a-month salary from the state. He prefers not to know much about the buyers: they probably do not declare their money. 

 

A cuentapropista couple in Havana bought a 2011-model European saloon for 30,000 CUC four years ago and sold it for 45,000 CUC; they traded up to a used SUV for 100,000 CUC. “We could have got many BMWs for the same price in the United States,” says the wife. Another habanero sold a house to buy a 25-year-old VW Golf for 10,000 CUC. In ten years its value has doubled. “I could sell it for a couple of thousand more if it had air conditioning,” he says. A retired engineer bought a 1980s-model Russian Lada from his state company in 2000 for 160 CUC, and sold it last year for nearly 100 times the price. 

 

Cubans realise how crazy the market is. Prices are so high, jokes Pánfilo, a comedian, on government-controlled television, that the Peugeot lion “covers its face with its paws”.

 

 

Cubanálisis - El Think-Tank

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