Dazed and Confused

Posted by Utkarsh Mohan
3 Mar 2013
Dazed and Confused

Even if you are one of those people who see eye to eye with Howard Hughes and avoid the outside world like the plague, if you live in Singapore, you have definitely heard of the MAS restrictions on vehicle financing over the last two days. If you are slightly more involved, you would have heard everyone and their uncles talking frantically about how this is the biggest upheaval to hit the car industry since indeed the COE system was introduced almost 23 years ago. 

The car forums have been abuzz with an intensity that could probably power a small city and the multitude of opinions offered on this subject would shame most election debates.

However in this madness, there does seem to be some consensus. Everyone agrees that COE will fall from its current levels and I would say rightly so. When you take away credit so drastically both in terms of magnitude and tenure (100%-50% & 10yrs to 5yrs), buying power & consequently demand will be dealt a double blow.

How much will COE fall to? Well there’s no point trying to guess that without two data points. What percentage of car owners do avail themselves of credit beyond the new limit & till what extent? And also what percentage of these car owners would have available liquidity to the extent of what we are talking to do a down payment for a new car in today’s world.

Since the former data point is the reserve of a select few in the finance industry and (I’m guessing) the government (I belong to neither group sadly) and the latter is anyone’s guess, I’ll steer far away from guessing future COE levels. 50K?40k?$2??...Go with whichever number makes you happy, but rest assured the days of $90K COE are long behind us

What I will try and do is try and give some practical points of view on what’s your best way forward depending on which part of the Singapore motoring cycle you happen to be in.

1)      Mr/Miss High COE, high Loan:

Sadly this is the category I fall under, i.e. you have bought a new car at high COE in the last two years. And I have a word for what we are. SCREWED!!

Well actually there’s no reason to be quite so dramatic though reality is hardly rosy.The resale value of your car is going to fall through the floor as new cars get cheaper. This coupled with your high loan levels mean that you will probably be looking at top-ups with numbers with lot of zero’s behind them to clear your loan if you need to sell your car anytime, EVEN in the next 5-6 years unless policies change dramatically again.  Don’t believe me? Calculate your paper value (its quite a simple exercise) and your loan outstanding at different points of time. Cause there ain’t no dealer who’s gonna offer you much more than paper value if new cars are so cheap. Personally for me, the difference is more than $10K even after 5 years of ownership.

And the best part is the double whammy. If you want to change your car, not only do you have to top-up your loan but you need to foot the 50% (or 40%) down payment for the next car as well. Given your proclivity for not wanting to/ being able to pay a lot of cash upfront (I am guessing this since you took a high loan), this will be a pill which will probably be too bitter too swallow.

So my advice? Love your current car like a family member and take good care of it. Chances are your car will be old enough to go to primary school if not older by the time you can afford to get rid of it. There is a bonus from this though. You can do whatever the hell modification or personalization you want with your car as resale value is screwed anyway. So if any of you ever wanted leopard print seats and purple velour in your car, now is the time

2)      Mr/Miss Newbie

For the person or family who has just managed to get affluent enough to afford a car or more likely, the recent move may feel draconian. How the hell are they going to foot down several 10s of Ks when their finances have already been stretched by other er. Cooling measures (property anyone?).  Many people who fancy themselves as society’s prudence inspectors say this is a blessing in disguise, if you can’t afford the 50% down payment, you damn well shouldn’t be buying a car in the first place. But I beg to differ please dear sir. The financial system exists for a reason and while I agree that 100% loans over 10 years with low interest rates may be inviting trouble,  something closer benchmarked to what many other countries do (of the top of my head, I think of 20% down payment, 5 years repayment) may be prudent enough. Anyways before I start a flame war beloved by the internet, I’ll change the topic

Mr/Miss Newbie, there are some seriously under-rated and cheap >7 yr old cars out there on the classifieds, fit for every budget, demanding little more than a 10-15K downpayment (I will play prudence inspector here and say if you can’t afford to pay $10K, you shouldn’t buy a car. No, just joking. It’s your choice, what you do with your moneyJ). You have hatchbacks, saloons, mpvs, even sportscars. Yes, you will compromise on brand and battle market perceptions but there are deals to be had. My top pick, though albeit a bit biased as a good friend just bought one for a short term drive, is the Opel Astra 1.6 or 1.8 hatchback. You can pick up a 2004 or 2005 one at around $25K. Opel’s are quite undervalued in the Singapore used market and I don’t understand for a life of me why. This Astra for example has ridiculously solid build quality (the doors close with the thud to put my Alfa to shame), really comfortable seats and  good interior quality(comparable to a Golf (atleast mk5) which Singaporeans seem to love) and a reasonably power fuel efficient engine. Yes, my friend has had to spend a k or two on some checks and some parts replacement but he is beyond satisfied. He swears its all the car. And in case you are wondering, this guy’s last two cars were a Mazda RX8 and an Audi S3.

So if you absolutely need a car, buy a PARF car, drive it for a couple of years and hopefully by then either you’ll be more cash rich (getting the PARF rebate when you deregister this car will help) or policies will change (I can dream, can’t I?).

3)      Mr/Miss  Low COE Wait and Watch

So you got lucky and were one of the few people who could afford to buy a car in the after math of the credit crunch in 2008, 2009 or even early 2010 and now your backside is just about starting to get itchy. Well, the government just handed you a second birthday present, didn’t they? Yes, the downpayment part is irritating but hey, if you could afford to buy a car four years back, chances are that you do have some money lying around especially since your car didn’t cost an arm or a leg. So the best thing for you is to continue doing what you were doing. Wait and watch until COEs come down to make new car prices palatable again. Yes, you won’t get the amazing resale value you thought you were getting in high COE years but if you had actually ever approached a car dealer, you would have realized that most of the amazing value of used cars was being pocketed in swelling dealer margins than their original owners.

So congratulations. I envy you!!

4)      Mr/ Miss Cash Rich

Haha, I can offer little advice to you. You are snickering all the way, waiting for COE prices to fall before you go and get your dream car. Just remember, they have sneaked in the ARF increase as well while everyone’s distracted by the Financing restrictions. So it won’t impact a Honda or a VW too much, but if it’s a Porsche you have been eyeing, be prepared to pay through the nose.

Please note. It is not this authors intent to offend though in case you are offended, then I apologize on behalf of the internet

We have upgraded our car loan calculators to comply with the new restrictions by the Monetary Authority of Singapore.

Please find the Car Loan Calculators using these links:
New Car Calculator    : http://www.oneshift.com/used_cars/car_loan.php?adid=33016
Used Car Calculator  : http://www.oneshift.com/new_cars/carloan.php?pid=3283

Related Links

Budget 2013: Motoring Implications

Budget 2013:What now?

Budget 2013: Industry Snapshot


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