THE "PEOPLE'S CAR" PROGRAM

C O N F I D E N T I A L TUNIS 000881

SIPDIS

SIPDIS

STATE FOR NEA/MAG - LAWRENCE

E.O. 12958: DECL: 04/12/2016
TAGS: ECON PGOV SOCI TS
SUBJECT: THE "PEOPLE'S CAR" PROGRAM

REF: TUNIS 635

Classified By: AMBASSADOR WILLIAM HUDSON FOR REASONS 1.4 (b) AND (d)


1. (C) SUMMARY: One of the fundamental components of
President Ben Ali's national agenda is the so-called
"People's Car" program, established in 1996. Designed to
support the ability of Tunisians to buy cars, the program
supplies a set number of small family cars at reduced prices.
Given high Tunisian consumption taxes on vehicles, which can
exceed 250 percent, the program has been hugely popular.
But, to the frustration of many Tunisians, this has resulted
in long waiting periods and rising prices. Rumors of
corruption and fraud in the system are also growing. END
SUMMARY.


2. (SBU) The goal of the People's Car program is to provide
average Tunisians with a small, four horse power (HP) vehicle
for their daily transportation needs. (NOTE: A 4 HP engine
in the Tunisian system is the equivalent of a U.S. 75 HP
engine.) The government exempts participating models from
the consumption tax, thus making these smaller vehicles more
affordable than other cars on the market. When the program
was introduced over ten years ago, few Tunisians could afford
to purchase a car although many middle class citizens wished
to do so. However, the program reduced prices of qualifying
vehicles by almost forty percent, creating a program so
popular the GOT had to limit participation, restricting each
family to one car per lifetime.


3. (U) Current waiting lists for purchasing a People's Car
exceed 100,000 individuals, according to local press reports.
Those who wish to participate pay a nominal fee (5 Tunisian
dinars (TD) or USD 3.75) to register with a dealership and
then await availability. Waiting periods depend on the car
desired, with seven models (totaling over 6,000 vehicles)
available in 2006: Volkswagen Polo, Renault Clio, Fiat Palio,
Opel Corsa, Toyota Yaris, Citroen C3 and the Peugeot 206.
Local media report the average customer waits five years for
a Polo, while the waiting period for the 206 is about three
years. Although 2006 prices have yet to be announced, it is
expected that prices will rise slightly, due to the Tunisian
dinar's continuing decline against the euro. The Fiat is the
cheapest vehicle, available for less than 11,000 TD (USD
8150),and other models are expected to range from TD 13,000
- 15,000.


4. (SBU) Although these are reasonable prices for a new
imported car, middle-class Tunisians, who are the target of
the program, still have difficulty funding their purchase.
With an average per capita income of USD 2600 (TD 3510) and a
low savings rate (Ref A),few Tunisians have sufficient
savings to purchase a car outright. Instead, the majority
uses commercial bank or National Fund for Social Security
(CNSS) loans to finance the purchase of their vehicle.


5. (SBU) However, loans are also difficult to secure and
repay. According to a local banker, commercial banks usually
charge a minimum of 8.5 percent interest on a car loan and
only approve loans whose monthly repayment does not exceed
forty percent of monthly income. The CNSS loan usually has a
slightly lower interest rate (currently 8.25 percent),
however the maximum car loan available is TD 10,000. Thus
families must have some cash in addition to the loan to
purchase a vehicle through the program. Both the CNSS and
private banks have strict qualification conditions, due to
the high rate of non-performing loans. According to several
individuals who have purchased through the People's Car
program, those earning less than TD 1000/month have
difficulty qualifying due to a variety of regulations. While
good middle class salaries are generally around this level,
most families are already repaying large home loans and other
debts, restricting their ability to finance a car purchase.


6. (SBU) Given the long waiting periods for a new car, the
price of used People's Car models is also rising. Press
reports say that the price of a used car in good condition is
now approximately equal to the price of a new vehicle. One
woman told Poloff that she recently sold a ten-year old
People's Car she purchased for TD 10,000 for about TD 7,000.
Additionally, consumers are now considering five HP vehicles,
like the Ford Fiesta, whose prices (about TD 19,000) now
approach those of models available in the People's Car
program. Ford was introduced to the Tunisian market by
President Ben Ali's brother-in-law Belhassen Trabelsi in

2003. Initially, Ford had difficultly establishing itself in
the local market, but sales are now growing. Rumor has it
that Trabelsi has exploited the shortage of 4 HP Popular Cars
and his connections to the quota system to ensure plenty of
Fiestas enter the market each year. For example, 1850 VW
Polos will be imported in 2006 (the largest share of all 4 HP
cars) while 2700 Fords will be imported.


7. (C) The system of allocating model quotas is no longer
transparent, but it was originally based on the amount of
component parts manufactured in Tunisia. For example,
Peugeot uses a large percentage of Tunisian made parts, thus
it has a higher quota. However, the Japanese DCM told DCM
that Toyota's quota was directly tied to Japan's imports of
Tunisian products, especially olive oil. Given the
inconvertibility of the Tunisian dinar and the general
shortage of hard currency, this explanation seems plausible,
although there is little official information available about
the quota system.


8. (C) COMMENT: Designed to respond to a middle class desire
for the trappings of a more developed country, the People's
Car program was a classic policy of Ben Ali's benevolent
dictatorship. It combined the GOT's sometimes irrational
insistence on trying to control everything in the country
with the regime's intense efforts to have the state, and more
importantly the President, perceived as the source of
everything beneficial for citizens. However, like many
Tunisian government policies, the program is desirable on the
surface but ineffective in actual implementation. While
owning a car once was a symbol of having "made it," Tunisians
continue to complain about high car prices and "suffocating"
interest rates on loans. Low quality public transportation,
high fuel prices and rising congestion in major cities only
add to the frustration. However, continued infrastructure
development and urban spread mean fewer Tunisians can survive
without a car, so they get in line. END COMMENT.
BALLARD