Fall in COE prices: What it means

Posted by Leonard Chew
13 Mar 2013
Fall in COE prices: What it means

Most of us might have speculated that COE prices would take a tumble after the new financial measures were introduced, but the outcome of the latest bidding exercise would no doubt have caught some observers by surprise.

It has been a while since COE prices for Category B (used to register large cars above 1.6-litres) fell below that of Category A (for smaller-engined cars). Category B closed at $58,090, as compared to $74,689 for Category A. I am guessing, if two people had tabled bids in the respective categories, Buyer B (with a Cat B COE) would have managed to get his Honda Civic 1.8 for a little less than what Buyer A paid for his Civic 1.6 (in Cat A). Sounds counter-intuitive, but such is the difference in price.

The price disparity is probably due to the stronger recent presence of continental makes in Category A, which could have meant that the bids were more aggressive than in Category B. A look at the number of bids received for both categories showed that 1,180 bids were submitted for the former, versus 1,028 for the latter. I suppose few in the industry would have expected such a low premium for Category B relative to Category A, which explains why the bidding for larger cars were rather conservative. Of course, there are other explanations for that, such as Category B buyers being more patient in the “wait-and-see” game as they are in less of an urgent need for a new car. Or it could be the effect of the higher ARFs for luxury cars.

So, while the Government has achieved its secondary goal of bringing down COE prices to lower economic inflation, the results of this exercise has also confirmed one of the worst fears for many lower-income and middle-class Singaporeans. A potential pitfall was that, all things being equal, the raft of measures would have been more favourable to the rich, since the less wealthy would be driven out of the new-car market because they could not fork out the higher downpayments required.

With Category B COE prices falling to a sizeable $16,000 below that of the Category A premium, the significance of this issue has been magnified. I can anticipate more members from the upper echelons to be thinking about entering the market for their first car or to consider upgrading their current cars, since they are not too affected by the loan measures and the rise in ARF is only a minor concern to them.

While I caution against reading too much into this round of results as it might be an anomaly, we could be headed for some dissent among members of the general society if the trend persists in the upcoming bidding exercises. The perception that cars are only for the wealthy may well be reinforced, and the class divide would represent a step backwards in our ultimate goal of creating a more equal society for all. However, market forces might restore the balance naturally as car buyers move their attention to where the real savings are and ponder about “upsizing” to Category B.

Perhaps other measures should have been undertaken to correct the vehicle market, but only time will tell whether this conjecture of mine is proven right. Policy-making is always tricky and often involves trial-and-error. This latest “experiment” might not have gone down too well in the report cards, though it is still early days as the industry is trying hard to steady itself as it rides through the waves of uncertainty. With that said, I shall reserve my verdict for now.

Related links:

Local News: COE Results for March Round 1


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