It is not a secret for anyone that the Cuban economy requires millions of dollars in investments in the transportation sector. The island is one of the countries with the highest demand for motor vehicles in Latin America; its meager and obsolete stock of cars makes it one of the markets with the worst transportation indicators in the region. Currently, Cuba's automotive replacement part market exceeds the value of the market for sales of new and used cars. Thus, the biggest business opportunities at this time are in the sales of spare parts.
Despite allowing the sale of cars a few years ago as part of the economic reforms implemented to transform the economic model, the price policy implemented by the Cuban government is a straitjacket and a heavy ballast that prevents the real development of the island's automotive market.
If we analyze the sales of motor vehicles, motorcycles and spare parts in the Cuban market, we will observe the great difference in the volume of sales that exists between these groups of products. The group consisting of spare parts and tires has traditionally dominated sales in the Cuban market overwhelming the other groups by a significant margin. In 2007 this group of products had sales of 288 million dollars; in 2015, sales were 443.7 million dollars, for a growth of 54%. In contrast, sales of bicycles and motorcycles were only 4.1 million dollars in 2007, a value 70 times lower than the sales of spare parts in that year. In the year 2015 sales of bicycles and motorcycles increased to 20.3 million dollars. The value of car sales in 2007 was only 9.9 million dollars, while in 2015 it dropped to 9 million, very low sales levels that corroborate the large car shortage on the island. See Figure 1.
Figure 1. Automotive market sales, by product group, 2007-2015
Source: Oficina Nacional de Estadística e Información (ONEI).
In 2015, according to the National Office of Statistics and Information (ONEI), tires, inner tubes and spare parts sales reached 443.7 million dollars, or 94% of total sales in the automotive market. In comparison, sales of bicycles, motorcycles and scooters accounted for 20.3 million dollars or 4% of sales, while automobiles were 9 million dollars or barely 2%. See Figure 2.
Figure 2. Automotive market sales by product group, 2015
Source: Oficina Nacional de Estadística e Información (ONEI).
Retail market
The reported sales in the retail market in these same product groups are remarkably low when compared to the total sales analyzed previously. For example, sales of tires and spare parts in 2007 were only 69.6 million dollars; nine years later they were 71.4 million dollars, for a low growth of 2.6%, which indicates that the market in the retail sector (population) has remained stagnant. The group of products consisting of scooters, motorcycles and bicycles in 2007 reported sales of only 1.6 million dollars while in 2015 they were 3.6 million, for a 125% increase, but with very low sales values. In the case of cars, in 2007 sales were 0.2 million dollars, while in 2015 no sales were reported. See Figure 3.
Figure 3. Automotive market sales, retail segment by product group, 2007-2015
Source: Oficina Nacional de Estadística e Información (ONEI).
If anything is clear in this analysis is that most of the in the automotive market are concentrated in the agencies that are part of the state's business structure, which covered 84% of the market, reporting sales of 398 million dollars, while a smaller share is concentrated in the retail market targeting a population of 11.2 million people, which reported sales of 75 million dollars in 2015, or 16% of the total. See Figure 4.
Figure 4. Automotive market sales by sector, 2015
Source: Oficina Nacional de Estadística e Información (ONEI).
Major companies that dominate the market for the sale of spare parts
On the island, there are several companies that control the market for the sale of spare parts and miscellaneous products for automobiles, transportation in general, construction equipment and agricultural equipment. These companies belong to different ministries or entities of the government.
Figure 5. Major companies marketing transportation and heavy equipment (for construction and agriculture) and spare parts, 2017
Source: Havana Consulting Group
The state enterprise TRANSIMPORT is in charge of importing light and heavy vehicles, as well as spare parts and other products for the automotive sector that are used by all industries and sectors of the Cuban economy.
This company works with an inventory composed of products from dozens of brands from Europe, South America, Asia and North America required to meet the needs of market segments composed of heavy transport, agriculture equipment, forklifts, hoists and motorcycles in use in the country.
Figure 6. Brands of transport equipment, agriculture, forklifts, hoists and motorcycles imported by TRANSIMPORT, 2017
Source: TRANSIMPORT
The companies in charge of the channels of distribution and sale of cars and spare parts have different scope and specialization. For example, SERVI-CUPET, ORO NEGRO and DIVEP are responsible for the retail sale of auto parts and other miscellaneous items in almost 400 sales points nationwide, distributed as follows: SERVI-CUPET (318 sales points), ORO NEGRO (60) and DIVEP (15).
The sale of automobiles is handled by points of sale of the DIVISION AUTOMOTRIZ of CORPORACION CIMEX (30) and SASA (15). UNECAMOTO and DIVEP are responsible for the sale of heavy equipment for transportation, construction, and agriculture. See Figure 7.
Figure 7. Distribution of state retail sales points of automobiles and spare parts
Source: Havana Consulting Group
Potential investors interested in the Cuban automotive market
At the moment a few companies have expressed interest in exploring investments in the island's automotive sector. They include: SEAT (Spain), LADA (Russia), GAZ (Russia), Mitsubishi (Japan), Toyota Motor Corp (Japan), Geely Automotive Holdings (China) and Hyundai Motor Co (South Korea).
The president of SEAT, the Spanish subsidiary of Volskwagen, expressed his interest a couple of years ago in exploring business opportunities in the Cuban market, following a formal request sent by Cuban President Raul Castro to the Spanish government to have a technical meeting with executives of the Spanish firm. Currently tens of SEAT cars are part of the stock of cars rented in Cuba by the tourism sector.
Likewise, the president of the Russian automotive group AvtoVaz, Nicolas Maure, has explored entering the Cuban market seeking to relaunch the brand LADA, which was very popular on the island in the 80s and 90s. Its approach lies in a marketing plan that would seek to reconquer the Cuban market and evaluate the real opportunities to invest in an assembly plant in the Mariel Special Development Zone (ZEDM). As part of this strategy, they have recently exported to Cuba a first group of 300 LADA cars to begin the marketing work, after a break in commercial relations of 12 years[i].
Also GAZ, another Russian company, is exploring the opportunity to invest in a truck assembly plant in Cuba[ii]. Its rival, KAMAZ, the Russian heavy transport giant, signed a contract with Cuba to supply 2,400 trucks, as well as spare parts and equipment for after-sales service[iii]. The latter operation has been co-financed by two banks, including Roseximbank.[iv]
Meanwhile the Chinese group Geely has shown interest in opening on the island a semi-knock down assembly plant (SKD)[v]; some 10,000 Geely vehicles have been acquired since 2007 and are being used in Cuba.
Another company interested in exploring the Cuban market has been the Japanese Mitsubishi Corp., which opened an office in Havana in July 2016. The company is exploring business opportunities in Cuba, including infrastructure projects in the Mariel Special Development Zone and other opportunities, seeking to enter the island before the arrival of its US competitors.[vi]
However, despite all these exploratory approaches, so far none of these companies has actually taken action to enter the Cuban market. What is the reason? Despite having high pent up demand, is Cuba an attractive market for the car sales business? What are the factors that prevent large investments in Mariel? Has the Cuban government created the necessary conditions to attract such investments?
Private sector
Meanwhile, the market segment that is active is the private sector, where only used cars are sold, in addition to having the limitation that a person can only own one car.
The high prices established by the state in its retail networks, coupled with the high demand for cars in the country, have caused prices in the private car market also to jump very high. It is common to find cars with 30 years of operation with prices between 10,000 and 30,000 CUC (1 CUC = 1 dollar), and even more expensive.
Private-sale transactions are the most dynamic segment of the automotive market. In 2016 there were almost 100,000 automotive sales announcements on various Internet sites that specialize in this sui generis market, where spare parts are also marketed. See Figure 8.
Figure 8. Comparison of the number of auto sales announcements on the Internet in the Cuban private market by three information portals, August 2016
Source: Prepared by the Havana Consulting Group, based on data published by the websites REVOLICO.com, PORLALIVRE.com and CUBISIMA.com.
These sites serve the network of private automotive workshops that have been created by Cuban entrepreneurs. At the moment there are 10,964 people with licenses to work in the different specialties in the repair and maintenance business of motor vehicles. See Figure 9.
Figure 9. Cuban entrepreneurs working in the automotive private sector, by modality, 2017
Source: National Taxation Office (ONAT)
Many of these entrepreneurs source spare parts from abroad, mainly from Moscow (Russia) and Miami (USA). In Miami, for example, there is a very well known store, located in Hialeah, dedicated to the sale of auto parts and accessories for Lada and Moskvich vehicles to supply the Cuban market. The owner is a Russian raised in Cuba who has managed to conquer a niche market remotely, buying the spare parts in Russia and selling them in Miami at a price up to four times lower than those sold by the Cuban state in their retail networks.[1]
Many Cubans who visit Miami buy the spare parts and take them with them on their return to the island. Others, have relatives in the United States who find passengers traveling to Havana to send their orders. Since the enactment of the new Cuban immigration law, many Cubans have been traveling to Russia to buy the spare parts and their operations also supply the informal market.
CONCLUSIONS
The automotive market on the island at the moment shows greater business opportunities in the channels of sale of spare parts than in the sale of new and used cars. The state sector offers the greatest opportunities, as it accounts for 84% of market sales, while the retail market only covers 16%.
At present, Cuba has a large deficit of cars, both in the state sector and in the private sector. Demand by the population is very high, as Cuba has one of the lowest rates of cars per inhabitant and is one of the countries with the worst transportation sector performance rates, which creates great losses to the economy.
Although the government has taken some steps that have removed constraints on car sales -- which were banned for more than half a century -- there are other obstacles that hinder a dynamic development of the automotive industry on the island. Among the main obstacles, we can mention that the state maintains a monopoly on the sale of imported new cars and used cars and sets extremely high prices in the channels it controls, to the point that they constitute the main obstacle that prevents the massive sale of cars in the island in spite of the great demand that exists.
Foreign automotive companies interested so far in exploring business opportunities in the Cuban market have found many limitations that have slowed their intentions to invest in the island, with the policy of very high prices for vehicles being a very important one. Currently, the Ministry of Foreign Trade and Foreign Investment has announced that it is seeking an investor to build and operate an assembly plant with a capacity of 10,000 cars per year in the Mariel Special Development Zone (ZEDM). However, so far no investor has stepped forward to take on this project.
References
[1] Fagenson Zachary, Adams David. “ENFOQUE-Mecánico de Miami suministra piezas de autos rusos a Cuba”. Reuters, Febrero 2015. http://lta.reuters.com/article/domesticNews/idLTAKBN0LF1CI20150211?sp=true
[i] RT. “Llegan a Cuba los primeros automóviles rusos Lada tras una pausa de 12 años”. Marzo, 2017. https://actualidad.rt.com/video/233046-llegan-cuba-primeros-automoviles-rusos-lada
[ii] Sputnik Mundo. “La rusa Gaz estudia fabricar vehículos en Cuba, Lituania y Venezuela”. Julio 2015. https://mundo.sputniknews.com/prensa/201508071040095098/#ixzz3iA7Z5z4z
[iii] SPUTNIK. “El grupo ruso Kamaz prevé entregar 2.400 camiones pesados a Cuba”. Noviembre, 2016. https://mundo.sputniknews.com/economia/201611161064882912-kamaz-cuba/
[iv] Alfonso, Pablo. “Empresa rusa Kamaz vende a Cuba 2.400 camiones”. Noviembre, 2016. https://www.martinoticias.com/a/empresa-rusa-kamaz-vende-cuba-camiones/133755.html
[v] Ludwing, Christppher. “Geely reaches out for help in a global future”. AUTOMOTIVE LOGISTICS. January 2011. http://automotivelogistics.media/interview/geely-reaches-out-for-help-in-a-global-future
[vi] Marsh Sarah. “Mitsubishi Corp dice explora proyectos de infraestructura en Cuba” REUTERS. Julio, 2016. http://lta.reuters.com/article/domesticNews/idLTAKCN0ZP03T
