Government answers call to ease COE crunch

Measures to delay vehicle curbs will see more COEs available for the year

By Christopher Tan, The Straits Times, 31 May 2012

CAR buyers will get a temporary reprieve in the coming months as the Government pulls back on its drive to crimp the growth of the vehicle population here.

The measures mean there will be more certificates of entitlement (COEs) than were originally expected for the rest of this year.

And more of them will be available for smaller cars, motorcycles and goods vehicles.

Motor traders said if not for the measures, the number of available COEs for cars would have slipped below 20,000 this year.

Now, it may be closer to last year's figure of 28,000, with a small contraction likely. The average annual supply between 2004 and 2008 was 105,000.

Yesterday's announcement by the Land Transport Authority (LTA) follows a government promise earlier this month to do something to ease the severe crunch on the supply of COEs expected to take effect in August.

The supply of COEs is being adjusted in two ways.

First, the annual vehicle population growth rate will be allowed to grow at 1 per cent from August, higher than the 0.5 per cent originally planned.

The 0.5 per cent rate will now kick in only in February. The net result of this is there will be about 10 per cent more COEs between August and January than expected.

Second, a parallel exercise to reduce COEs - in order to make up for an inadvertent oversupply in 2008 and 2009 - will be held off until July next year.

This will add roughly 7 per cent more COEs each month than originally expected, until the exercise resumes in August next year.

These two moves, which will slow the fall in supply of COEs, are in addition to a third change, which will affect the supply of Open category COEs.

Currently, a quarter - 25 per cent - of COEs from each of the other four COE categories - make up the supply of Open COEs.

But this allocation will shrink to 20 per cent from August, and to 15 per cent from February.

This means that 40 per cent of COEs from this category - long the preserve of wealthier bidders - will be distributed among the other categories.

Asked yesterday whether the measures were merely deferring a problem - as an aggressive reduction in supply will resume next year - Mr Lui said the problem 'will take on a different complexion come 2013 and 2014'.

This is because COE supply will expand on the back of a huge cohort of cars bought in 2004, which will be due for scrapping as they approach their 10th year.

'One thing I can say quite confidently is that in 2014, there'll be far more COEs than what we have today,' he said.

The Government has been tweaking the COE system since it was implemented in 1990.

Changes include the configuration of the vehicle categories, the form of bidding (from closed to open), the transferability of certificates and deposits required by bidders.

The system determining the supply of COEs in any year has also evolved, from basing the quota on the number of vehicles taken off the road in the preceding year to pegging it to the number of vehicles expected to be taken off the road in the current year.

Now, it is based on the number of vehicles taken off the road in the preceding six months.

COE prices unlikely to go into free fall
But new measures may moderate premium hikes, say industry players
By Christopher Tan, The Straits Times, 31 May 2012

THE latest tweaks made to the certificate of entitlement (COE) system may moderate the increase in premiums, but are unlikely to cause prices to go into free fall in the months ahead, motor traders and industry watchers said.

Yesterday, the Land Transport Authority (LTA) announced that, first, the vehicle population growth rate will be cut to 1 per cent from August, instead of to 0.5 per cent as planned. The 0.5 per cent rate will kick in only from next February.

Second, an exercise to reduce COEs to compensate for an oversupply in 2008 and 2009 will be deferred for a year to July next year.

And third, the number of Open category COEs will go down, because its supply will be made up of smaller contributions from the other four categories; conversely, the number of COEs in the other categories will grow modestly.

Singapore Vehicle Traders Association secretary Raymond Tang said the August to January quota will still shrink, but 'the reduction will be more moderate'. The premium for cars up to 1,600cc might still go up to $70,000 for a few months.

This is because the mitigating measures will not fully offset a sharp drop in supply in this category.

Industry players had been bracing themselves for this category to shrink by more than 60 per cent before the LTA's latest steps.

Mr Tang expects COE prices for bigger cars to continue to 'shoot up', given that fewer COEs on the whole will be available for this group of bidders.

This is because the Open category, on which big-car sellers and buyers rely heavily, will shrink sizeably.

In recent months, the COE premium for cars up to 1,600cc breached $60,000, while that for bigger cars crossed $90,000.

This has, in turn, sent car prices to near record levels and contributed to a rise in the inflation rate.

Industry players said the decision to redistribute Open COEs - which can be used to register any vehicle type but end up largely for big cars - will go down well with the public.

Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, described the move to trim the Open category as 'logical'.

'COEs in this category are used almost exclusively for bigger cars,' he said.

But motor companies which sell predominantly bigger cars are not thrilled.

Audi Singapore managing director Reinhold Carl said 'it will not be easy' for premium marques, and expects COE prices for cars above 1,600cc to go up further.

However, he said he reckoned a $100,000 COE premium was unlikely at the moment.

This was also the view of Dr Park Byung Joon, who heads the Master of Science programme in urban transport management at SIM University.

'For the time being, these measures will help avert the $100,000 COE,' he said, in reference to the all-time record premium of $110,000 in 1994.

He noted that when the number of COEs supplied last year was about 30,000, COE prices were floating within the $50,000 to $70,000 range.

With these measures, the number of COEs available this year will be around the same as last year's; thus, it would be reasonable to speculate that COE prices will be around those of last year's for the time being, he said.

Motor traders, however, expect prices to surge in the coming tender next week.

Mr Lim said this could be fuelled by 'pent-up demand' - from buyers having held back in the past month in anticipation of an increase in supply.

COE prices are unlikely to fall: Experts

WE NOTE that consumers in general are expecting a decline in premiums of certificates of entitlement (COEs) following the Land Transport Authority's announcement that it will pull back on its drive to crimp the growth of the vehicle population here ('Government answers call to ease COE crunch'; Thursday).

In our analysis based on current deregistration numbers, despite the recent measures, the Category A quota - for cars of 1,600cc and below, and taxis - is expected to fall by some 40 per cent from current levels. It is unlikely the COE premium will decline for this category.

Tan Wah Sern
Executive Secretary
Motor Traders Association
ST Forum, 2 Jun 2012

WHILE the revised COE quantum formula averts a worse situation, it does not address the system's boom and bust cycles.

In view of the uncertain number of deregistrations until the end of this month, an objective way to assess the revised formula is to apply it to the present February-to-July allocation window.

With annual growth allowance raised to 1 per cent in lieu of 0.5 per cent from August this year, and the temporary suspension of negative adjustments due to past oversupplies, the average number of COEs across all categories for each bi-weekly auction would be about 1,786 compared to the current 1,846. Some 627, 331 and 151 COEs would be available in Categories A (for cars with engine size 1,600cc and below and taxis), B (for cars with engine size above 1,600cc) and E (unrestricted) respectively.

These numbers account for the lower provision of COEs in Category E from August.

The average number of COEs in the forthcoming allocation window between August and next January will most likely be below 1,786 per bi-weekly auction due to fewer deregistrations this year compared to the second half of last year. Thus, the COE premiums can be expected to stay at their high levels.

Singfat Chu
Associate Professor of Analytics
NUS Business School
ST Forum, 2 Jun 2012

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