More less-expensive Cat B cars registered

THE recategorisation of Certificate of Entitlement (COE) Category A a year ago has led not only to the median Open Market Value (OMV) of small cars falling, but also that of bigger and more expensive Cat B cars - though the reasons differ.

While there has been a surge in mass-market cars rather than luxury models being registered in Cat A because of an engine-output cap, it appears that vehicle-financing restrictions, a tiered registration tax structure and high COE premiums are behind the changes in Cat B registrations.

In February 2014, Cat A for cars of below 1,600 cc was reclassified to include an engine output limit of 130 hp. The measure was to ensure that Cat A continued to cater mainly to mass-market car buyers and stem the strong growth in luxury models with smaller engines, such as the Mercedes-Benz C180.

The move was successful, and in the one year since February 2014, more small cars which cost less have been registered. The median OMV of Cat A cars registered with COEs obtained between August 2014 and January 2015 fell 26.8 per cent to S$19,143 from S$26,147 in the corresponding six-month period between August 2013 and January 2014.

The Land Transport Authority (LTA) had taken those periods for comparison because two policy changes in the early half of 2013 had affected the car market; these were the vehicle-financing restrictions and the tiered Additional Registration Fee structure implemented on Feb 25, 2013.

But according to the LTA, the median OMV of cars registered in Cat B using COEs obtained in the same six-month period was also lower, falling 22.4 per cent to S$32,861 from S$42,339.

Its spokeswoman said: "This drop in Cat B median OMV is not unexpected, as cars which were previously considered 'high end' relative to Cat A cars have been moved into Cat B, where they now form the lower end of the new Cat B."

But luxury dealerships suggested other reasons. One is the stronger demand for Cat A models compared with Cat B.

The director of a luxury brand said: "The attention is now focused on the Cat A segment, as the Cat A COE quota increases and a wave of replacement buyers returns to the market."

But most agree that both the 50 per cent cash downpayment and progressive taxes are making high-end cars more expensive today than they were two years ago.

The general manager of a luxury dealership said: "Most people buying a new luxury car today are downgrading."

An example could be of a Mercedes-Benz E-Class owner and a BMW 5 Series driver, who may downgrade to a C-Class and a 3 Series respectively for three reasons: car prices have since risen because of higher taxes, a 50 per cent of the downpayment in cash is required, and the loan-repayment period is only a maximum of five years.

"These factors are affecting people's buying behaviour - how often they change their car and the model they choose," he said.

But there is no clear pattern so far in this "downshift". Vehicle registration numbers by make and model are not openly available because of personal data protection rules; besides, it is early days yet.

The general manager said: "The loan curbs are only two years old, so those who bought their cars with 100 per cent loans stretched over 10 years don't have to change them yet.

"We will need another three to four years to see a pattern, when these cars get older and their owners have to start paying more for maintenance and repairs."

This article was first published on April 1, 2015.
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