By Colin Yong

FEW IN THE car trade were surprised by the results of April’s first bidding exercise for COEs – this was the first tender of the 2008 quota year, which has a smaller number of certificates available. Prices correspondingly rose on the back of the reduced supply.

The Category A certificate (for cars up to 1.6 litres, and taxis) gained $1,541 to close at $16,930, while the Category B COE (for cars above 1.6 litres) ended up $500 dearer at $19,501.

The rise in the price of the Open Category COE (which can be used to register any type of vehicle) closely mirrored that of Cat B, going up by $535 to $19,389. Both the Cat B and the Open Cat premiums are now within a few hundred dollars of their respective 52-week highs.

Just a month ago a sales manager for a major Japanese brand told CarBuyer that a realistic price level for the new quota year would be around $18K for Cat A and $20K for Cat B. While prices haven’t hit those marks just yet, it looks like it will happen sooner rather than later.

But why is there such healthy demand for new cars despite the fact that COE premiums have been climbing steadily since February, and given all the worries about the world economy? It’s simply because the general sentiment in the car market is that prices are going to rise further, so it’s better to bite the bullet now.

In other words, fears of more expensive COEs in the future are causing people to buy cars now, and this increased demand is sending premiums up today. Car prices go up in tandem, distributors place stronger bids in the next round causing COE premiums to go up further… you get the picture. It’s a vicious circle.

There’s another, less obvious mechanism at work in this market of rising prices.

When COE premiums fell to their lowest levels in years in 2006 and the early part of 2007, many existing car owners who wanted to trade up to newer models found that they were unable to because they were locked into long-term loans, and the outstanding loan amounts substantially exceeded what their cars were worth then.

Now that new car prices have gone up, the market for second-hand cars is also healthier so more owners are able to sell their cars without falling into negative equity. No doubt their new cars cost more now than it did some months back, but the extra amount is factored into a whole new loan so the monthly repayments are only marginally higher, especially since interest rates are relatively low now.

But against all this has to be balanced the ever-increasing cost of running a car, caused by everything from record-high petrol prices and parking rates to new ERP gantries springing up in the heartlands.

The government is also considering giving out Preferential Additional Registration Fee (PARF) rebates – handed over when a car is deregistered – in cash rather than as discount for a new car. This may just be the incentive needed for some motorists to give up their cars, a move which will certainly help put the brakes on runaway COE premiums.

Category A – CAR (1600cc AND BELOW) AND TAXI: $16,930

CAT A UP $1,541

Category A
April 1st tender
52-week high: $17,999
52-week low: $8,118
Quota: 2,043
Bids: 2,570

THE BID RATIO (the number of bids divided by the number of COEs available) jumped sharply from 1.14 to 1.26, a result of not just the smaller quota but a rise in demand. This wasn’t unexpected because there were three weeks instead of the usual two between bidding exercises (caused by there being five Mondays in March this year), so dealers had an extra week to fill their order books.

The new Toyota Corolla Altis is also said to be selling strongly, and distributor Borneo Motors would undoubtedly be placing high-quality bids in order to deliver all those cars to their owners.

Category B – CAR (ABOVE 1600cc): $19,501

CAT B UP $500

Category B
April 1st tender
52-week high: $19,802
52-week low: $13,114
Quota: 1,132
Bids: 1,382

THERE WERE ACTUALLY fewer bids placed for Cat B certificates this time round, so the $500 rise in the premium can’t be directly attributed to the ‘three-week bounce’, a phenomenon which almost always sends COE prices up immediately after a three-week break between tenders. Some in the industry think scarce stocks of the new Honda Accord actually prevented a heftier gain.

“If they had stocks (of the Accord) then Cat B would surely have been over $20K,” said a manager at the distributor of a Korean brand. “We all know how strongly Kah Motor bids for COEs once they have a buyer for a car…”

Category E – OPEN: $19,389

CAT E UP $535

Category E
April 1st tender
52-week high: $19,510
52-week low: $13,301
Quota: 881
Bids: 1,348

WITH SOME 200 fewer certificates available, the Open Cat saw the biggest cut in supply for the new quota year. Surprisingly though, there were 365 fewer bids placed for these transferable COEs compared to the last round. Perhaps many dealers noted the smaller quota and expected prices to jump dramatically, so they decided to bid in one of the other two categories instead.

Or it could be that they were unsure what showroom traffic will be like in the coming weeks, and figured that keeping stock of Open Cat COEs for the ‘immediate registration’ of new cars would be too big a risk to take.