By David Ting

THE continuing uptrend in Certificate of Entitlement (COE) premiums has turned showrooms for new mass-market cars into ghost towns, even as used-car dealers see brisk sales.

Premium European makes like Mercedes-Benz, Audi and Volkswagen may be doing better than ever in the current COE climate, but Japanese brands are suffering serious falls in sales figures and the number of walk-in customers, compared to those in the same period last year.

Much of the buyer traffic has gone to the second-hand market, which offers decent alternatives to costly new cars.

The best buys right now are cars between one and three years old. Their prices, even after adjusting for major movements in COE premiums, have dropped the most in percentage terms. Moreover, cars in this age group are still covered by warranty.

Depending on its condition and mileage, a two-year-old car typically costs 20 per cent less than an equivalent new one, before factoring in the cost of wear and tear and workshop expenses.

Common Japanese models like the Toyota Corolla and Honda Jazz/Fit are cheap and easy to fix, while continental cars with complicated electronics are harder and costlier to repair when they break down.

In response, major players in the second-hand market are offering sweeteners such as extended warranties (up to 12 months), multi-point technical checkups (some of which come with factory endorsement), and full histories of previous servicing (itemised and stamped accordingly).

Low interest rates for used car loans provide a further boost.

For the first time in about a decade, the benchmark interest rate for used cars fell recently to roughly the same level as that for new cars - around 2 to 2.2 per cent.

This compares with a half percentage- point gap between the two rates last year, and with a full-percentage-point difference - depending on the hire-purchase deal - prior to last year.

Keen competition, both between banks and between dealerships, has led to this trend.

The renewed popularity of the second-hand market also means that some motorists who bought their cars in 2008 and early last year now enjoy zero depreciation on their vehicle's value.

For instance, when COE premiums shot up earlier this year, the market price of a late-2008 Toyota Wish was around $60,000. This allowed an owner to sell his Wish at the same price at which he bought it. A few car owners even made net gains, at least on paper.

Second-hand car firms are optimistic. Car Times, for example, has been selling 100 used cars a month this year, 30 per cent better than its average sales per month last year.

More than 17,000 used cars were sold from January to April this year, which is more than half the number of cars that changed hands during the whole of last year.

» Next: 10 tips for buying a second-hand car