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