SINGAPORE: Some motor traders have expressed surprise at the results of the latest Certificate of Entitlement (COE) bidding exercise.
The results out on Wednesday saw only a marginal decrease in the premium for Category A, which is for cars below 1600cc.
The government recently introduced a new regulation where Category A cars must have engine power that is not more than 97 kilowatts, or about 130 brake horsepower.
Transport Minister Lui Tuck Yew announced last September that cars with engine power exceeding 97 kilowatts would be grouped together with the bigger cars in Category B.
This was aimed at levelling the playing field for mass market cars, like those produced by Toyota and Mitsubishi, by removing premium cars from Category A, and to eventually bring down the prices.
Many continental cars like the Mercedes Benz C180 and the BMW 118i are now grouped with bigger cars in Category B.
In the latest bidding exercise, premiums for Category A cars dipped to S$71,564, a mere S$726 decrease compared to the last bidding exercise.
Car dealers Channel NewsAsia spoke with said they had expected the premium for small cars to drop to between S$60,000 and S$65,000.
Ron Lim, general manager of sales and marketing at Tan Chong Motor Sales, said: “If the new reclassification rule had successfully removed the luxury mix from Cat A, we should have seen a bigger correction than what we have seen today.
“But what we’ve noticed here is that some of the luxury mix is already back (in Cat A) under the new ruling, and we suspect that these models are responsible, in a way, in holding up the premium.
“Today’s correction is too marginal and I don’t think it’s going to help the mass market brands a lot.”
But some experts said there could be other factors at work.
Asst Prof Walter Theseira, from the Nanyang Technological University’s economics division, said: “The average car owner in Singapore — even if you’re buying a mass market car — is somebody who is upper-middle class or at least middle class.
“These are people who do have the ability to pay and if they do want a car quite badly in some cases, they are willing to pay for it.
“Even if you were to eliminate all of the near-premium cars in the mass market, I’m not sure whether that would have a dramatic effect on Cat A prices.”
Another possible solution could be to restrict mass market cars to those who need it rather than those who can afford it.
But experts said this would bring another set of challenges, especially if it means leaving that decision to the government.
Asst Prof Theseira said: “The advantage of the system we have today is that it is very efficient. It ensures that people who get cars are the people who value the cars very highly — people who are willing to pay a lot for it.
“The bad thing of course is that sometimes there are people who really want a car, who really feel they need a car, but they can’t afford to pay for it.
“We get into this issue whether we should allocate cars (based on needs). The problem with this is that you get drawn into this problem of trying to decide who is more needy or deserving than another person.
“Do we really want to put the LTA in the position of being the one to decide ‘You are more needy than somebody else’? I think that’s a very difficult position to put the government agency into.
“That, I think is the difficulty of moving to a system which is maybe more needs-based rather than market-based.”
Looking ahead, industry players said COE premiums are likely to remain high despite the recategorisation, given tighter COE supply in the first half of 2014, and with car buyers likely to remain prudent with MAS loan curbs.
They expect some distributors to bring in similar models with lower horsepower to meet Category A’s new requirements.
Thomas Lim, general manager at Think One Leasing, said: “They can bring in similar models with lower engine capacity, or they can bring in the diesel engine models with similar engine capacity, lower BHP, but higher torque, which is cheaper.
“It would make the Cat A COE remain crowded, and the price of COE will just remain (at a similar level). It will be more crowded in Cat B, so Cat B (COE price) will increase a lot more than Cat A.”
Channel NewsAsia understands that other continental brands may also have plans to introduce cars that meet new restrictions.
Meanwhile, there are concerns that shifting premium cars to Category B may hit mass market cars in the same category.
Raymond Tang, honorary secretary of Singapore Vehicle Traders Association, said: “There will be a lot of cars migrating from Cat A to B.
“The existing cars that are in Cat B that belong more towards the mass market, like the Toyota Camry, Honda Accord, Honda Civic… — they will feel the pressure because we can see the overcrowding of Cat B. That definitely will make an impact on the COE… maybe rising tremendously.”
In other categories, COEs were mixed, with premiums for Category B cars falling by S$3,700 to S$75,300.
Premiums for the open category also went down by S$1,807, to S$77,003.
This also surprised observers as bigger cars (Cat B) had been the most affected by recent reductions in quotas.
However, COEs for motorcycles increased by S$347, to S$3,051, while those for commercial vehicles rose by S$1,001 to S$51,002.