Cubans aghast at car prices as new law kicks in

HAVANA (AP):

Talk about sticker shock! Cubans are eagerly flocking to Havana car dealerships as a new law takes effect eliminating a special permit requirement that has greatly restricted vehicle ownership in the country.

To their dismay on Friday, the first day the law was in force, they found sharply hiked prices, some of them light years beyond all but the most well-heeled islanders.

A new Kia Rio hatchback that starts at US$13,600 in the United States sells for US$42,000 here, while a fresh-off-the-lot Peugeot 508 family car, the most luxurious of which lists for the equivalent of about USUS$53,000 in the UK, will set you back a cool US$262,000.

"Between all my family here in Cuba and over in Miami, we couldn't come up with that kind of money," said Gilbert Losada, a 28-year-old musical director. "We're going to wait and see if they lower the prices, which are really crazy. We're really disappointed."

Cuba's Communist-run government traditionally has placed huge markups on retail goods and services paid for with hard currency, a policy that amounts to a tax on people who can afford such goods. The practice applies to everything from dried pasta, to household appliances, to Internet access.

The astronomical sticker prices on the cars will likely mean fewer sales and the state leaving money on the table, noted Philip Peters, a long-time Cuba analyst and president of the Virginia-based Cuba Research Centre.

"There's a lot more money to be made at lower price points," Peters said. "It's a short-sighted tax-man's mentality. ... Paradoxically, they mark it up so much that they're not going to make any money. But that's the mentality."

Havana legalised the sale of used cars by private individuals in 2011. But long-standing rules remained in place requiring Cubans to obtain a Transportation Ministry permit to purchase a new or used car from state-run dealerships. Permission took months or years to obtain, resulting in a black market in which car buyers would often quickly flip them for a big profit.

The new law eliminates the need for a permit, but does not allow Cubans to import automobiles directly. The government retains its monopoly on that, and alone decides a vehicle's market value. Some exceptions will still exist allowing diplomatic missions and foreign entities to import vehicles.