When Chilean President Augusto Pinochet causally announced to journalists two weeks ago that he planned to reduce import tariffs on automobiles, the reaction here was almost euphoric.
The idea, Pinchet explained, was to allow cars -- both new and used -- to he delivered to Chile at prices as low as $2,500 with only a 10 percent tariff.
The cheapest new car in Chile now costs about $5,000, and the duty on imported new cars is 110 percent. Importation of used cars is effectively barred by a whopping 10,000 percent tax.
In one fell swoop, Pinochet seemed to be reinventing the Model T. His announcement held out the promise of cars for the little man.
But two weeks later, Pinochet's plan seems to have backfired, and the government is having second thoughts. The expectations raised by the announcement may go unfulfilled.
The reasons explain something about Chile, about cars, about four of the world's largest automobile companies and about Pinochet, who could not resist announcing something he knew would be popular with Chile's middle class before all the details were worked out.
The results so far have been catastrophic. First, within days of the announcement the market for both new and used cars in Chile was destroyed as consumers stopped buying all cars in anticipation of the lowered duties and cheaper automobiles.
As the market dried up, the four automobile companies that assemble cars here under a contract signed in 1976 -- General Motors, Citroen, Renault-Peugeot and Fiat -- were infuriated. It seemed that the government was about to abrogate its contract with them, and they had not been in formed of the announcement in advance.
A1 Buchanan, managing director of General Motors-Chile and president of the U.S. Chamber of Commerce here, publicly accused Pinochet of "changing the rules in the middle of the game." He warned that if the government abrogated its contract with the automakers other potential foreign investment -- which the military government very much wants to encourage -- would be jeopardized.
Before the government started having second thoughts about the plan, all anyone here was talking about was cars. This is a country where automobiles are stillvery much a luxury and where most people have never owned an automobile of their own.
An average middle-class Chilean earns about $250 a month, not nearly enough to buy even the cheapest car assembled in Chile -- Citroen's "Deux Chevaux," known here as the Citroneta -- which sells new for $5,400. A four-year-old Citroneta that went for about $2,000 before Pinochet's announcement is now worth about $1,000.
With the announcement it seemed that suddenly there were going to be better used cars on the market for $2,000 and some for as little as $1,000 to $1,500, a price that middle-class Chileans eager for the status and independence of an automobile could afford.
El Mercurio, Chile's most important newspaper, in an article listing the prices of some used cars in the United States, informed its readers what might be in store. For $1,000 to $1,500 it was possible to buy a 1972 Buick Le Sabre, a 1972 Pontiac Le Mans or a 1972 Volkswagen Beetle, among others, in the United States. Add $500 to $800 for shipping and insurance and these cars would be on the dock in Valparaiso, Chile's major port.
But then came the complications. Miguel Kast, the minister of economic planning, said the government never intended to abrogate its contract with the automobile assemblers -- all Pinochet had said was that the government wanted to renegotiate it.
But the auto representatives, led by Buchanan, claimed that used cars were morally covered by the contract even if they were not specifically included.
Buchanan found himself warning Chileans that used cars really were not a very good investment. Anyway, he said, after the 1976 contract was signed, an assistant minister of economic planning made a statement promising that the 10,000 percent tax on used cars would remain. That is where the moral obligation comes in.
Kast said that was ridiculous. But apparently in the meantime someone convinced Pinochet that allowing thousands of gas-guzzling used American cars into the country was not such a good idea. The president said at a breakfast with journalists last week that there would have to be some controls on the kinds of used cars allowed in.
Later, Buchanan was invited to speak with government officials. He said he had received assurances that, while the government still wanted to lower automobile import tariffs, it was prepared to pay a subsidy for each car produced in the country to compensate for the lower market prices brought about by the reduced tariff protection.
Buchanan said he was also told that the government would do nothing precipitous about allowing used cars in.
At stake are the 17,000 cars Buchanan said are assembled in Chile, another 10,000 to 15,000 that will be imported this year under the 110 percent duty and several thousand jobs provided by the four companies.