Published September 25, 2009

COE quotas cut 15.7%, premiums poised to climb

Sharp cut in small cars' quota and open category

By SAMUEL EE

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(SINGAPORE) The predicted supply shock for certificates of entitlement (COEs) came yesterday and although it is less than the most pessimistic estimate, most motor distributors agree that premiums have nowhere to go but up.

The Land Transport Authority's (LTA) mid-quota- year review will remove an overall 15.7 per cent from the remaining number of COEs available.

Specifically, for the bidding exercises from October 2009 to March 2010, there will be 17.8 per cent fewer Category A COEs (for cars below 1,600cc); a 9.8 per cent reduction in Cat B (cars above 1,600cc); a whopping 28.1 per cent less in Cat C (goods vehicles and buses); 6.7 per cent less for Cat D (motorcycles); and an 18.8 per cent decrease in Cat E (the open category).

Currently, the monthly quota is 2,791 Cat A COEs, 1,519 Cat B, 461 Cat C, 779 Cat D, and 1,432 Cat E. The across-the-board reduction will take away 497 COEs in Cat A, 149 in Cat B, 130 in Cat C, 52 in Cat D, and 269 in Cat E.

'It's not rocket science - premiums will go up,' says Gavin Yeo, commercial director of Borneo Motors, the authorised Toyota distributor. But Mr Yeo declines to speculate by how much, citing the uncertainty still lingering over the economic recovery.

Jason Lim, sales manager of Cycle & Carriage, which distributes Mercedes-Benz, Mitsubishi, Kia and Citroen, believes car COE premiums will range between $25,000 and $30,000 by year-end.

'Cat E is already above $20,000 and premiums are definitely going to shoot up in the next few rounds,' he says. 'Besides, there may be some panic buying and this will push it up further.'

In yesterday's second COE bidding exercise for September, Cat A fell a substantial $2,431 to $15,589 but Cat B inched up $512 to a 27-month-high of $19,801.

Cat E - the open category - rose $370 to $20,200. The last time this category crossed the $20,000 mark was three-and-a-half years ago.

Cat C slumped $1,001 to $15,000, while Cat D slipped $151 to $900.

Among the categories, Mr Lim thinks Cat B will continue to surge the fastest.

'Some premium brands are still doing relatively well and buyers of these cars are less affected by increases of a few thousand dollars,' says Mr Lim. And although mainstream buyers are more price-sensitive, he adds that Cat A premiums may not be far behind because of the large 17.8 per cent cut in COEs.

LTA says the mid-quota- year review is undertaken annually to determine if there is any significant difference between the actual number of vehicles deregistered, and the number of deregistrations projected at the start of the quota year in May 2009. In the first eight months of 2009, the actual deregistrations of vehicles in all categories were lower than projected.

For example, between April and August this year, the monthly deregistration rate has been consistently lower compared with the same month a year ago, ranging from 19 per cent to 29.4 per cent less.

Yesterday's COE cuts point to the maximum market size for passenger cars in calendar year 2009 being approximately 71,532 units, or down a substantial 26.5 per cent from calendar year 2008's 97,348 units.

'The reduction will change Cat A buying patterns most and could result in more people turning to used cars,' says Vincent Ng, product manager of Kah Motor, the authorised Honda distributor.

This is because with almost 500 Cat A COEs less each month, distributors will have to bid higher for a smaller number of certificates. Car prices will in turn be pushed up and the popular budget sedan segment, whose models currently cost about $50,000, will slow down as customers are priced out.

But Mr Ng believes this is just the start of a bigger contraction in the industry.

'According to my projections, the 2010 market size may be even smaller, at just slightly over 60,000 cars,' he says.