New car sales in Cuba soured by 400-percent markups

While most analysts expected Cuba's lift of a decades-long ban on the sale of new cars to come with an asterisk or five, few could have predicted that the internationally hailed move would immediately turn out to be a mirage. Private car sales in Cuba have been heavily regulated by the government since 1959, and imports had been banned almost entirely. On Jan. 1, 2014, the government no longer required a special dispensation from authorities in order for one to purchase a new automobile, opening government-run dealerships that offered a modest selection of cars. Before the start of the new year, the move was viewed around the world as a step in the right direction by the Cuban government. Car-hungry buyers were met with sticker shock, though, according to Reuters.

The state-run dealerships were selling new cars all right, but with markups ranging from 400 percent to nearly 1,000 percent. In a nation where the average monthly income is only around $30, car buyers were more than a little disappointed to find a 2013 Peugeot 206 hatch with an asking price of the equivalent of $91,000. A few yards away, a Peugeot 508 was being offered for sale at $262,000. At a used car dealership across town, former rental Renault beaters were offered for the equivalent of $25,000, about 900 percent more than they are worth outside of Cuba. A used Toyota Corolla was offered for sale for $40,000. Many locals who had planned to buy a car at the start of 2014 were understandably angry at the government.

Rinaldo Wurglitsch
Havana's streets are filled with 1950s American cars, old Russian cars, and occasional modern cars owned by foreigners and the wealthy.

One explanation offered for this bizarre pricing structure, which seemed to effectively ensure that potential buyers would skip new cars altogether and look to the used market, suggested that the Cuban government had taken a luxury-tax approach to new car sales, opting to sell fewer cars with greater profit margins rather than selling more cars with more modest profit margins. However, Cuba's implementation of a luxury tax seems to be a self-defeating move; the sale of Peugeot economy sedans for the equivalent of a quarter of a million dollars is unlikely to make money for the government even with a 900-percent markup.

Despite the popular image of Cuba being filled with nothing but American classics, Havana's streets today exhibit a motley mix of 1990s Russian cars, relatively new Korean and Chinese econoboxes owned by the government, privately owned 1950s American cars, and a few modern luxury cars mostly owned by diplomatic missions. Add to that aging Hungarian buses and Eastern European trucks and you have a pretty normal street scene in Havana. Two years ago, Cuba had allowed private party sales of used cars, which reinvigorated the car trade somewhat; many hoped that 2014 would bring greater opportunities for those seeking to buy cars. For now, it seems that the same cast of used cars is here to stay.

By Jay Ramey