Big jump in small car COEs soon

CAR buyers can look forward to lower prices in the coming months, on the back of a substantial increase in certificate of entitlement (COE) quota.

According to figures released by the Land Transport Authority (LTA) yesterday, there will be 11,298 COEs available to car buyers in the February-April quota - 23 per cent more than in the previous three months, and more than double the supply from the same time last year.

The biggest beneficiaries will be those buying smaller cars, as the supply of Category A COEs (for cars up to 1,600cc and 130bhp) will be 41.3 per cent bigger than it is today.

The supply of Category B COEs (for cars above 1,600cc or 130bhp) will see a growth of nearly 27 per cent.

Park Byung Joon, an urban transport management expert at SIM University, said the new quota should result in lower premiums for Cat A "for sure", and "a little bit for Cat B".

He envisaged Cat A premiums falling by more than 10 per cent.

Ron Lim, general manager of Nissan agent Tan Chong Motor, noted that the Cat A quota is now "pretty close to the magical number" of 1,000 COEs per tender, which he said would result in a meaningful drop in prices.

"It'll be interesting to see if a correction will set in," he said.

He added that the enlarged supply is also "timely" because the Singapore Motorshow starting today is likely to lead to higher car sales. "It should absorb the increase in demand," he said.

Including certificates for commercial vehicles and motorcycles, the February - April quota will have 14,114 COEs. This is 18.3 per cent more than the previous three-month quota.

The new quota is the first with a reduced 0.25 per cent cap on annual vehicle population growth. The cap has been lowered systematically in recent years - from 3 per cent to 1.5 per cent in 2009, then to 1 per cent in 2012 and 0.5 per cent in 2013 - as the Government addresses what it deems to be an unsustainable vehicle population growth rate.

Had the growth rate remained at 0.5 per cent, it would have bumped up the new quota by almost 5 percentage points.

LTA added that the latest quota includes a smaller Open category, which is now made up of 10 per cent of COEs from each of the other four categories, instead of 15 per cent before.

This is to address a vehicle population growth pattern that has been skewed in favour of cars. Even though the Open category was originally meant to be a "safety valve" to prevent overheated prices in the other categories, it quickly became the sole domain of cars - especially bigger models. This is because sellers of big cars had bigger profit margins and could outbid others.

Dr Park pointed out that the February-April quota is just the start. Like other industry watchers, he expects that the next several quotas will be even bigger, with supply peaking some time next year.

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