More COEs At Last: The Pros & Cons
Singapore -
Making headline news on Yahoo Singapore was the fact that the supply of COEs announced for a quota period will see its first increase since 2004. Back then, the quota period was a year, and for the quota period of May 2003 to April 2004 it was 118,693, increased to 120,538 for the period May 2004 to April 2005.
Since then the quota has tumbled ever on, with quota revisions modified to happen half yearly and, as from February this year, quarterly, in order to let car de-registrations have a quicker return to COE supply. The main component of COE supply is car de-registrations, and that’s exactly what’s reflected in the figures here.
As mentioned in this story, the COE supply has been upped by 32 percent overall, and this is reflected in the fact that de-registrations (aka ‘scrapping’) have jumped from 8,758 to 12,073 in the three months preceding each quota period respectively.
It’s like rain after Singapore’s not-so-proverbial drought earlier this year, and good news indeed, but that doesn’t mean its time to break out the chequebook and go car shopping unabated. Here’s why this news is both good and not-so-good.
Category A - Monthly Quota
Aug 2013 - Jan 2014: 728
Feb-Apr 2014: 717
May-Jul 2014: 1,011
Category B - Monthly Quota
Aug 2013 - Jan 2014: 746
Feb-Apr 2014: 701
May-Jul 2014: 966
Category E - Monthly Quota
Aug 2013 - Jan 2014: 522
Feb-Apr 2014: 382
May-Jul 2014: 586
Pros
1. Any news that isn’t bad news…
Is good news...sort of. It’s sign of just how bad things have gotten that an increase in COE supply makes big news all around. As mentioned, it’s the first time the supply has seen an increase for a long, long time. At this juncture though, car buyers and car dealers will take anything they can get.
2. It’s a prelude of things to come
As the LTA’s figures on car age shows, this increased trend in de-registrations can only continue, as a majority of cars up for COE renewal (i.e. 10 years old) must do so within the next three years. In fact, according to CarBuyer’s interviews over the years, this is the most important thing that local car dealers have been banking on.
Cons
1. Supply’s up, but what about Demand?
In those conversations with car dealers and brands, we’ve also come across a trend describing customers that have put off their purchases for various reasons - high COEs, ARF tax increases and so on. The long-term effect is that there is also a large number of potential car buyers whose number can only increase as COE prices go down. Keep in mind that despite the record-low for a COE price being $2, there has never in history been a case where there were more COEs than buyers.
2. COE supply still isn’t responsibly regulated
The COE system will still be subject to long-term fluctuations, and that’s something you can link directly to the age of cars. The problems we face now are compounded by the nature of the COE system itself: low COE supply, high COE prices, lots of second-hand cars are traded, de-registrations fall as people drive the second-hand cars to the end of their 10-year cycle, which leads to low COE supply again. The inability to buy cars is one problem, the car industry being hamstrung is another. Our current COE prices for example, eradicated Chinese car brands from the market (not entirely negative, actually), but also forced Japanese and Korean brands into survival mode for the past half decade. With that in mind, this expected increase in COE supply shouldn’t be celebrated, but be taken as an opportunity to push further for COE reform.
