* (up to July) Source: Land Transport Authority

By Leow Ju-Len

FIGURES from the Land Transport Authority confirm what the car industry has known for some time: the used car market is dead. CarBuyer concluded this by studying the LTA’s latest figures for the number of vehicle transfers.

Because there is no public data that tracks the second-hand car market, looking at the number of transfers is the best way to gauge the market’s health. Although a vehicle transfer is not necessarily a second-hand transaction, every used car sold requires a transfer of ownership.

FREEFALL
Startingly, the figures show that there have been fewer used cars sold in 2004 than second-hand motorcycles. In absolute terms, 23,204 second-hand cars changed hands up to July this year, compared to 25,335 used bikes. Considering that cars outnumber bikes on the roads three times to one, that’s a tiny number of second-hand car transactions.

In absolute numbers, the used car game peaked in 2000 with 93,469 units traded. That collapsed to around half that level last year, showing just low the market has sunk.

In relative terms, however, the used car market has been in decline since 1997. That year, there were more than three second-hand cars traded for every new car sale. Now, there are more than two new cars sold for every used car that changes hands.

The car business has witnessed this first-hand. The falling prices of new cars has made second-hand cars so worthless that most end up being de-registered (or ‘scrapped’, as the trade calls it) and exported.

LIBERAL VALUES
Some in the trade say the liberalisation of car financing in January last year, when the 30 percent downpayment and seven-year limit were dropped, played a crucial role in the decline of the used car market. “Once you make it so easy for people to buy a new car, why would anyone want to buy a used car?” asks one director of multi-brand franchise. “Now you can put down $1 for a downpayment on a brand new car.”

Indeed, there’s much consensus among motor traders about why the second-hand market is floundering. “In a falling COE market, used car values take a tumble,” says one sales and marketing manager, summing up the situation.

What’s more important is how the present situation will impact the car market in the long run. One implication for buyers: “resale value” has become an increasingly meaningless concept as a criterion for choosing a new car. “Resale value? Does that mean your two year-old Toyota will be worth more than a two year-old Nissan?” scoffs one manager we spoke to. He says that scrap value, not resale value, is what determines a used car’s value these days.

“Anything around three years old that is Japanese or Korean would get scrapped,” notes the director we spoke to. Given that so many cars end up being exported to other markets, used car valuation has become largely determined by how favoured a car is not in Singapore, but in other countries.
The scary part is that the trade has no idea which cars are likely to hold their value well.

“It almost varies from month to month,” says the director. “Six months ago it used to be Mercs and Bimmers. Recently it’s started to shift to Japanese cars.”

DANGER AHEAD?
If used car value equals scrap value, and that continues to be the case for some time, the motor trade could be in for a problem. That’s because in May 2002, the Government reworked the PARF rebate scheme to stop scrapped cars from haemorrhaging out of Singapore, with the result that the early deregistration of a car now gets you a smaller rebate than before.

With up to 100 percent financing available, people are also borrowing more on their cars. A bigger loan, combined with a lower PARF rebate, means that many buyers will have to stick with their cars, and wait until they have paid off enough of their loan to cover the outstanding sum by scrapping their cars. This means buying a new car every three years, which has become the habit for Singaporean drivers, could become a thing of the past.

“The real danger for the car market is that if this persists, no one is going to change their cars for five or six years,” says the director we consulted. “And with so many COEs being released, where are all the new car buyers going to come from? We could see an all-out price war in the future, just to draw in customers.”

VERDICT
Some long-term vision would benefit you, the car buyer. As you eye up that new car, keep one thing in mind: how long do you intend to drive the same car?

If you’d like the option of changing cars often, instead of staying with the same machine for six years, the thing to do would be to exercise some discipline and borrow less for your new car. The old finance rules (30 percent down, 7-year maximum) actually ensured a level of prudence that would leave you with more options in future.

This could mean driving a cheaper or smaller car than you could otherwise afford, but it beats driving what one dealer terms a ‘negative equity’ – a car which is worth less than the amount still owed on it. And if an ‘all-out price war’ does erupt among motor traders in the future, at least you’ll be better placed to take advantage of it.