By Christopher Tan, Senior Correspondent

SO the long-anticipated review of the COE supply formula has taken place.

Instead of basing the quota on the number of vehicles expected to be taken off the road - which is like reading tea leaves - the Land Transport Authority will now hinge supply to actual deregistrations.

The new system is to address a decade of mismatches.

In the early noughties, the number of COEs released had always been far fewer than actual deregistrations.

Then in the last five years, we witnessed an oversupply that caused car premiums to crash.

In one case, to $2.

While the revised system removes the probability of error of the previous forecasting method, it could give rise to a lag between past demand (time of deregistrations) and present demand (period of bidding).

This effect was in play between 1990 and 1999, when the supply formula was based on past deregistrations.

The latest version is, of course, more responsive because supply will be determined in six-monthly lots, instead of 12-monthly as it was then.

But there will still be a lag: a six-month lag instead of a 12-month lag.

In the case of the maiden quota of the new formula, the supply will also be abnormally low because it is based on deregistrations in 2009, a recessionary year which saw the number of cars scrapped or re-exported falling to the lowest level in 10 years.

So, from this month, the number of certificates available each month will be almost 40 per cent fewer than at the same time last year.

This will almost certainly lead to sharply higher premiums.

More so if the economy keeps strengthening.

Motor traders reckon average car COEs will reach $60,000 in the next couple of years.

Car buyers will be hit by this price spiral - especially first-time buyers because they won't have a trade-in vehicle that will appreciate with a rising market.

Those who are already car owners are not much better off.

Although the resale value of their current rides will rise in tandem, they will have to fork out more for a replacement.

For most, it will be a zero-sum game.

The pressing question now is, what can consumers do before prices start defying gravity in a big way?

As always, there is no one-size-fits-all answer because your course of action depends on so many situations, circumstances and conditions.

For the sake of brevity, let us narrow things down to three or four options.

Option 1: Buy now, not later

If you are in the market for a car because you are unhappy with your current ride, or your car is coming to its 10th year, or you have a fat bonus you don't quite know what to do with, you should commit now.

Premiums won't go back to 'cheap' levels any time soon.

Once you have zeroed in on a car (or type of car) you want, find a dealer who will commit to a delivery date.

In a market faced with a very real prospect of rising premiums, the less wishy-washy the sales contract, the better.

Option 2: Go second-hand

If you feel current showroom rates are already too high, shop for a used car.

Those between one and three years old are the best bets because their prices would have fallen most (in percentage terms).

Such cars would also be in pretty good condition.

Those sold by authorised agents would still be under warranty, too.

Option 3: Revalidate your COE

If you are happy with your current ride and you are confident it will give you another five or 10 years of relatively trouble-free motoring, pay the PQP (prevailing quota premium) to extend the tenure of its COE.

The PQP rate for a 1,600cc car is around $20,000 now.

If you think that is high compared with last year's near-record low of below $4,000, remember that the rate will be even higher later.

So, be decisive.

It may be worth your while to revalidate, even if you have one or two years left on your current COE.

If you decide to revalidate for five years, you will pay half the PQP rate, but you won't be able to extend it at the end of the five years.

But if you extend by 10, the option to revalidate again is open to you.

Option 4: Wait and see

This is for folks with relatively new cars.

There is really no need to get rid of your car once it approaches five years.

You can use it right up to the day before it turns 10 and it won't fall to pieces (well, a few might, but let's not name names here).

There is a chance that premiums might fall in the distant future if actual demand for cars falls.

This could be because of a comprehensive and speedy public transport system.

Or sky-high pump prices, parking charges, ERP and insurance rates.

Or worsening road congestion.

Or all of these.

In which case, would you still want a car?

The writer is the consulting editor of Torque magazine.

This is an excerpt of an analysis that appears in this month's issue of Torque. Get a copy for the latest on all things on four wheels. Torque, published by SPH Magazines, is available at newsstands now.

This article was first published in The Straits Times.

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