Ageing cars may keep COE prices up

Enlarged cohort of cars reaching 10 years old fuels pent-up demand

By Christopher Tan, The Straits Times, 4 Mar 2014

SINGAPORE'S car population is older than it has been for more than a decade, fuelling a growing pent-up demand for new cars as thousands of certificates of entitlement (COEs) reach their 10-year lifespan.

Last year, the number of cars aged between eight and 10 years old trebled to 107,251, according to the latest Land Transport Authority data.

Of more than 621,000 cars on the Republic's roads, more than half were over six years old, up from less than a quarter in 2003. Those aged seven and eight made up 18 per cent of cars - up from 3 per cent in 2003.

COE premiums currently hover at just below the $80,000 mark, more than three times their value a decade ago.

Hence, more motorists have been holding onto their cars, suppressing deregistrations and pushing up prices of COEs, which are determined mainly by deregistration numbers.

Industry players like Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, believe drivers have been deterred from replacing their cars because of the prevailing high prices.

That means pent-up demand will soon send COEs up and profit margins down.

"No doubt we will see more cars being deregistered in the coming months, but it will still be tough catering to this replacement demand," Mr Lim said.

Mr Vincent Ng, product manager at Honda agent Kah Motor, said he expects deregistrations will "grow exponentially from the fourth quarter" of this year, but like Mr Lim, he expects demand for new cars to grow likewise.

This is why the trade hopes that the Government will bring forward some certificates due to be made available in the next COE supply boom years of 2015-17.

"The Government says it will save some COEs from these years for the next dry spell in 2019-2021," said Mr Lim.

"But if it brings some COEs forward, it will result in the same thing - a flatter supply pattern over the long term."

Singapore's feast-and-famine COE supply pattern has been blamed for wildly fluctuating car prices since the vehicle quota system started 24 years ago.

Meanwhile, motor traders expect stronger demand for Category A COEs - for cars up to 1,600cc and 130bhp - after a loans curb and higher taxes for bigger cars kicked in last year.

Many who had previously bought bigger cars are now "downgrading" to Category A models.

At the last tender two weeks ago, Category A COEs ended at $77,201, while Category B - for bigger, more powerful cars - closed at $78,604. Both were more than three times 2003 prices.

Industry players still expect premiums to fall, although not in the next six months at least.

With car prices remaining high, Mr Ng said: "There will be some who will switch to buying used cars and others who will give up owning a car."

Mr Lim also expects some motorists will be "knocked out of the market" by high prices in the near future, adding: "We don't know how many, but it can be quite substantial, so this could result in lower premiums in 2016."

However, Mr Allan Chia, head of SIM University's School of Business marketing programme, said it is difficult to predict how consumers will behave. He said: "Most car owners weigh both emotional and rational reasons when deciding whether or not to buy."