Wednesday 28 August 2013

8 in 10 want COE system revamped, LTA poll from May to July 2013 finds

Many prefer cars to be categorised by OMV instead of engine capacity
By Royston Sim And Jermyn Chow, The Straits Times, 27 Aug 2013

EIGHT in 10 people want the current certificate of entitlement (COE) system to be revamped, with many favouring cars being categorised based on their Open Market Value (OMV) instead of engine capacity.

More than three-quarters also want surcharges to be levied on buyers of two or more cars.

These were some of the findings that came from a two-month public consultation exercise held by the Land Transport Authority (LTA), which is exploring ways to make vehicle ownership more socially equitable.

About 3,700 people were polled online, while another 200 took part in focus group discussions and interviews. The LTA shared the main findings with academics, the public and the motor industry last night.

The most stark statistic: More than 80 per cent felt that the COE categorisation should be changed.

Nearly 50 per cent preferred using a vehicle's OMV to separate mass-market cars from luxury models, as they believe this is the most direct measure of a car's value.

Others cited criteria like engine power and capacity, family friendliness and carbon emissions. Cars are currently classified by engine capacity, with those at 1,600cc or below in Category A and those above 1,600cc in Category B.

The majority of people polled felt a mass-market car should not have an OMV exceeding $20,000, or an engine capacity of more than 1,600cc.

Most also felt that a surcharge should be imposed on those who own more than one car. But there was no consensus on how this should be done - whether on individuals or households, for the second or third car onwards, and if it should be a one-off surcharge.

Most focus group participants felt a surcharge would not be effective as it would be easy to circumvent and difficult to enforce.

One issue that drew heated discussion among academics and the motor industry at yesterday's briefing was the COE supply. Participants asked if the authorities should smoothen the peaks and troughs of COE supply to keep the lid on demand and prices.

Economist Chu Singfat from the National University of Singapore suggested that the LTA raise the COE supply for now to meet high demand and soften prices. Then, when COE deregistrations pick up next year, the authorities should claw back on the supply to ensure the annual vehicle population growth stays at 0.5 per cent.

The COE bidding system was also debated. While some car dealers said a pay-as-you-bid system could bring down COE premiums, economists said such a model will not be efficient.

LTA chief executive Chew Hock Yong said the COE review is in its final stages, and assured the public and motor industry that they will be given time to adjust to the changes.

COE system's rocky 23-year ride
Scheme had noble aim but it has spawned not-so-noble outcomes
By Christopher Tan, The Straits Times, 27 Aug 2013

IN ITS 23-year history, Singapore's certificate of entitlement (COE) system has been accused of many things: being ineffectual, revenue-making, inflation-driving and prone to wild, cyclical price fluctuations.

The noble aim of the scheme was to curb vehicle population growth via auctioned ownership permits.

But it has spawned a not-so-noble phenomenon in recent years - that it is inequitable and favours the rich.

It began four years ago, when Mercedes-Benz introduced a 1.6-litre C-class sedan.

Today, nearly half of cars registered using COE Category A (up to 1,600cc) are premium or luxury brands, with Mercedes and BMW garnering the lion's share.

This fuelled criticisms - which were aired in Parliament - that mass market consumers have increasingly been nudged out.

There is merit to the observation, since the presence of such brands in this category had been negligible before 2009.

For sure, the unhappiness - precipitated from a conversation that has evolved from "I want a car" 15 to 20 years ago to "I need a car" today - is difficult to quell.

For starters, can a price-based system ever be equitable?

The simple answer is "yes". The very fact that COEs are split into different categories shows policymakers had wanted a measure of equity in the system.

And one could argue that there was more equity before four car categories were merged to become two in 1999.

The Government is looking to address this, by re-examining the way COEs are categorised and allocated. It took the first step early this year when it changed the way supply of COEs in the Open category - which technically can be used for any vehicle type but ends up being used mainly for bigger cars - is formulated.

Open COE supply is now made up of 15 per cent of COEs from each of the other four categories - down from 25 per cent previously. The percentage is expected to go down farther.

Then in June, the Land Transport Authority (LTA) launched a survey which sought what people thought, among other things, about the COE categorisation method and whether a surcharge should be applied for multiple car ownership.

Not surprisingly, moving from the current engine capacity to a car value-based categorisation got the most votes (nearly half of 3,900 respondents).

Likewise, nearly 80 per cent thought a surcharge should apply to individuals or households with more than one car.

It would be foolish of course, for the Government to change policies based solely on populist demands.

Likewise, to dismiss the survey results entirely would be to ignore a possible collective wisdom that academics may find hard to substantiate with statistical tests or cost-benefit analyses.

Certainly, there are pros and cons to tweaking the quota system this way or that. A value-based categorisation is fairest, but there are concerns that a car's open-market value (OMV) may fluctuate - placing a model in one category one month and in another the next.

There are also fears that such a system might "encourage" importers to underdeclare values - a scourge the authorities have yet to fully eradicate.

Likewise, an engine power- based categorisation may not restore equity in the system. This is because it will be easy to detune an engine, and re- tune it upwards after registration.

Also, diesel models have relatively low horsepower (but high torque), and all the premium and luxury makes are big on diesel.

The solution might be to form a matrix that takes into account a car's engine size, power output and OMV. But it will surely be harder to administer than today's.

A surcharge on subsequent cars poses challenges, too.

As with most price-based tools, it merely raises the barrier to entry - not bar entry.

And since other parts of the vehicle taxation system are already progressive (the tiered Additional Registration Fee, for instance), will an additional surcharge be seen as anti-wealth?

An absolute - and perhaps non-monetary - restriction on the number of cars a person or household can own will be a hard policy to sell. And probably harder to enforce. But that would not be good reason to reject it - if it is indeed the right thing to do.

Of course, arriving at such a conclusion is never easy when there are so many stakeholders with opposing interests.

In that respect, a car ownership control - which the COE system essentially is - can never be quite perfect. It can nevertheless be more equitable than it is today.

And perhaps for too long now, Singapore has relied too heavily on principles of economic efficiency in its approach to tackling problems.

Alas, the most efficient methods are not always the fairest.

Set COE cap at 110,000 a year: Motor agents
Fixed supply will help stabilise prices, trade body says in proposal to LTA
By Jermyn Chow, The Straits Times, 28 Aug 2013

CALLS are mounting for a more even supply of certificates of entitlement (COE) to end the "feast or famine" scenario that Singapore now faces.

The Motor Traders Association is the latest to back the move, which supporters say could help stabilise prices that have veered wildly in recent years.

Meanwhile, the Land Transport Authority (LTA) is finalising changes to the 23-year-old system which limits the number of vehicles on the road by making all buyers bid for a certificate.

Last Friday, the association - whose members are authorised agents - submitted a proposal calling for the formula that determines the COE supply to be ditched.

It suggested capping the number given out each year at 110,000, with a buffer of 20 per cent. This could help prevent peaks and troughs, like the one car buyers are currently faced with.

Only 10,488 COEs were available to them between February and July, the lowest number since the system started in 1990. And prices have been volatile, swinging from $48,112 in February last year to $91,010 a year later for mass-market cars.

The association's president, Mr Glenn Tan, said a fixed supply would help dealers plan their resources and "bring about more stable COE prices and subsequently vehicle prices too".

He said the Government should consider a mandatory lifespan of 10 years for all vehicles.

Mr Tan said not having as many old commercial vehicles around could bring other benefits such as improved fuel efficiency and a reduction in breakdowns. He added that an increase in the supply of COEs would still allow the Government to limit the annual growth in the vehicle population to 0.5 per cent for the next two years.

The LTA said it received the proposal last week.

A spokesman said it is conducting a long-term study to "see if there is a practical way of putting aside some of the supply from the upcoming peak expected in the next few years, and to save it for the future when COE supply becomes tighter". She added that the proposal would be examined as part of this. Possible changes to the COE supply were a hot topic for academics and the motor industry during a briefing by the LTA on Monday. It followed a two-month public consultation on ways of making vehicle ownership more socially equitable.

Those at the briefing asked the authority to soften prices by smoothing out the peaks and troughs in the COE supply. Kah Motor general manager Nicholas Wong said: "Supply is still lagging too far behind demand... we can no longer rely on the car's 10-year cycle but must be more proactive in managing the quota and controlling the prices."

Pay-as-you bid system may not result in lower COE premiums
By Ng Yew-Kwang, TODAY Voices, 5 Sep 2013

There have been calls to replace the Certificate of Entitlement (COE) open bidding system with a pay-as-you-bid system. Proponents of the latter argue that such a system will result in more conservative bidding and, therefore, lower COE premiums. It would also force more well-off bidders to pay a higher COE premium had their bids been higher. This need not be true.

In today’s lowest clearing price auction system, bidders outbid one another to obtain a COE. Let’s say there are four bidders for two COEs. Each bidder submits the maximum bid that they would want to pay for the COE — S$1,000, S$2,000, S$3,000 and S$4,000 respectively. There is a risk of missing out on the COE if they underbid, and there is no loss in bidding the amount that they are truly willing to pay.

Some critics of the present system allege that it encourages people to overbid. This is not true. It only encourages people not to underbid.

The COEs go to the top two highest bids. The COE premium is S$2,001, which is the highest unsuccessful bid of S$2,000 plus S$1.

In an open pay-as-you-bid system, there is no lowest clearing price. The COEs go to the highest bidders who pay what they bid. Bidders will adjust their bids downwards so that they would not pay too much over the eventual strike price even though some are willing to pay much more.

Using the same scenario of two COEs and four bidders, the four may instead place bids of S$1,000, S$1,800, S$2,001 and S$2,100 respectively in a pay-as-you-bid system. The COEs go to the top two highest bids of S$2,001 and S$2,100.

While the marginal winning bids may fall, the average prices may in fact increase under such a system.

Moreover, underbidding in this system need not result in lower COE prices as its proponents hope.

Worse still, if bidders with more willingness to pay misjudge the winning price and underbid by too much, the COE may go to those with less willingness to pay, creating inefficiency.

The current bidding system is efficient in revealing true willingness to pay and should be kept.

However, the definition of Category A for small cars should be changed to exclude very expensive cars and to lower its COE price to fulfil its original purpose to ensure some element of social equity.

Professor Ng Yew-Kwang is Albert Winsemius Chair Professor at Nanyang Technological University’s Division of Economics. He participated in the Land Transport Authority’s public consultation exercise on refining the COE system.

Keep COE auction but boost taxi supply
By Ng Yew-Kwang, TODAY, 9 Sep 2013

The Certificate of Entitlement (COE) auction system is being reviewed. In my view, Singapore should largely keep it — but more taxis should be made available to reduce the frequent failures to get cabs especially at weekends and peak hours at big shopping centres.

Singapore is using an excellent method of auctioning COEs, called the Vickrey system after the Nobel laureate who demonstrated its efficiency. To illustrate: Suppose there are only two items of the same type to be auctioned. There are four bidders, each willing to pay a maximum price of S$4,000, S$3,000, S$2,000, and S$1,000 respectively. But each bidder only knows his own willingness to pay, not those of others.

Under the Vickrey auction, each bidder has the right incentive to bid her true maximum willingness to pay. After the bids are collected, the two items are allocated to bidders 1 and 2, but instead of their respective bid prices they pay the highest missing-out price of S$2,000 plus S$1. The items are allocated to those who value the items highest. Those missing out are not willing to pay for the price actually paid — that is, S$2,001.

In contrast, under the pay-as-you-bid method, winning bidders 1 and 2 would have to pay S$4,000 and S$3,000 respectively; they do not gain by bidding their maximum willingness to pay, as they would have to pay this amount. This would motivate them not to bid their true willingness to pay.

As all bidders try to underbid in different proportions, the final outcomes may involve allocating the items to bidders with lower willingness to pay. Also, the auctioneer may or may not collect more revenue than under the Vickrey auction.

Singapore should definitely not change from the efficient Vickrey auction to an inefficient system.


I also see no reason to ban car dealers from bidding for COEs. Ultimately, dealers have to get car buyers to pay for both the car and the COE. Thus, I do not think that bidding by dealers will persistently drive up COE prices.

Secondly, even if it does, it may not be a bad result. The higher revenues from the higher prices of COEs go to the Government and could be used to improve the public transport system.

We should not have to worry about people not being able to buy cars; private cars are not a necessity in Singapore. I have been in Singapore for over half a year, and neither my wife nor I own a car. Rather, cars, especially in the expensive range, are “diamond” goods (goods valued for their values) with conspicuous consumption (i.e. showing off) effects. From the standpoint of efficiency alone, not to mention equality, they should be highly taxed.

Instead of banning dealers, the COE bidding system could be improved by issuing a higher quota for smaller cars and smaller quota for big cars, to the extent that the second category commands a much higher price than the first. This is efficient because a larger car has higher degrees of diamond and conspicuous consumption effects and hence, should be taxed more. Even on the basis of congestion and pollution, a larger car should be charged more (though this could also be via petrol use).

The resulting lower COE prices for smaller cars may make middle-income groups feel somewhat better.


Instead of trying to lower COE prices, or to increase the number of COEs issued thus causing more congestion and pollution, people in Singapore would be served better by having more available taxis to complement the public transport system.

Though the number of taxis here is high, we still experience a serious shortage at weekends and at shopping centres. One possibility is to increase the number of taxis, and also slightly increase meter rates to offset lower occupancy rates for taxi drivers (extra revenue from issuing more taxis could also be used to compensate existing taxi licence holders).

Most people taking taxis have either high incomes or urgent business to attend to. In either case, they are willing to pay the higher fares — availability is much, much more important to them.

Making taxis more available would encourage people to not own cars. It would also likely help to reduce COE prices. Once a person owns a car, he would tend to drive more as the marginal cost of each trip is low and the owner thinks more trips “have” to be made to justify the high fixed cost of the COE-inclusive price.


Some people say that taxi drivers prefer to wait for call bookings because of the extra booking fees, instead of coming around to taxi stands. If this is true, we should consider counter-measures.

One would be to allow moderate pick-up fees at busy taxi stands (such as at major shopping centres). I do not mind paying call-booking fees when calling from home or the office — however, when I am outside, I find calling for a taxi a hassle. Also, the tourist industry is very important to Singapore and many tourists may not have the use of mobile phones while here or may not be able to identify their location to the taxi operator.

The Land Transport Authority should also encourage taxi companies to offer emergency bookings at extra charges. This is to ensure that in truly urgent, high willingness-to-pay cases, people do get serviced. When something is urgently needed but not available, the loss could be enormous.

Ng Yew-Kwang is Winsemius Professor in the Division of Economics at Nanyang Technological University.

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