By Colin Yong

NOTHING WORKS BETTER to kick-start a slow car market than a big drop in COE premiums. That’s exactly what happened earlier this month when the Category A certificate (for cars up to 1.6 litres, and taxis) shed nearly $4,600 to close at $11,009, its lowest level in nine months.

A flurry of activity in car showrooms accompanied the subsequent price cuts of up to $3,000 on Cat A models, but most dealers said the fast-and-furious order taking that usually came with such a big drop in premiums never materialised.

“We saw a 20 percent increase in walk-ins but it wasn’t as jam-packed as before when COEs fell by this much,” said a sales manager of a major Japanese brand.

“Then, customers would park illegally along the main road just to get to the showroom but nothing like that happened this time,” he added, pointing out that general sentiment about the weak economy has made people cautious about committing to big-ticket items.

Despite this, the sales manager said his brand closed 30 percent more sales over the last two weeks, mainly as a result of sales staff calling up previous prospects to inform them of the COE crash and also offer additional discounts.

This indicates that there is still a big chunk of Cat A buyers sitting on the fence and who would only sign on the dotted line if they feel they are getting a particularly good deal – good enough for them to take the plunge now, not wait and see if COE premiums might fall further still.

Certainly, there’s talk that Toyota distributor Borneo Motors is being unusually flexible with the pricing of its newly-launched Corolla Altis, possibly in an attempt to win back market share from Honda. Toyota has been the number one-selling brand in Singapore for six consecutive years but it has trailed Honda so far in 2008.

Elsewhere in this week’s open bidding exercise, the Category B COE (for cars above 1.6 litres) ended up $1,232 dearer at $17,113, still some way below the $20,000 mark many had predicted it would hit by now.

Demand for Cat B cars is relatively price-insensitive so it’s unlikely that last round’s $1,621 drop in the COE premium would have caused buyers to rush in and send prices up again.

The rebound can more likely be traced to the debut of important new models like the Audi A4, BMW 1 Series and Honda Accord. Their respective distributors would have been bidding strongly to secure COEs to clear the initial backlog of orders.

Where will the COE market go from here? Don’t expect the Cat A premium to fall back to the $11,000 level any time soon – there were 761 unsuccessful bidders for the certificate this time round and most of these people will be rejoining the fray in a fortnight. This will prop prices up.

It’s also interesting to note that Honda distributor Kah Motor is offering COE rebates of between $17,000 and $18,000 for the Accord, which indicates that it will be bidding at least that amount to secure COEs.

So if you were one of those who remained on the fence even after the car price adjustments two weeks ago, make yourself comfortable. COE premiums will take a while yet to fall to those levels again.

Category A – CAR (1600cc AND BELOW) AND TAXI: $15,701

CAT A UP $4,692

Category A
May 2nd tender
52-week high: $17,999
52-week low: $8,118
Quota: 2,063
Bids: 2,824

THE BID RATIO (the number of bids divided by the number of COEs available) jumped sharply from 1.08 to 1.37 on the back of strong demand. The new Toyota Corolla Altis would have something to do with this – Borneo Motors put 995 Altis 1.6s on the road in April alone, so it’s pretty obvious that this one model would account for a large chunk of the 4,000-odd Cat A certificates available every month.

Then there’s the Honda Jazz, soft-launched last week. Deliveries only start in November but interest in the car has been strong and Kah Motor is already bidding for COEs for the early-bird buyers.

Category B – CAR (ABOVE 1600cc): $17,113

CAT B UP $1,232

Category B
May 2nd tender
52-week high: $19,802
52-week low: $13,114
Quota: 1,100
Bids: 1,396

CAT B TOO saw a bid ratio increase although it was less pronounced than Cat A’s, going from 1.12 to 1.27. Most industry observers still think the premium is unnaturally low though, given how strongly Cat B cars in general have been selling (don’t forget popular MPVs like the Honda Stream and Toyota Wish also fall into this category).

Now that the prices for Cat A and B COEs aren’t that far apart, ‘marginal’ Cat B buyers – those who might be considering both a Civic 1.6 and 1.8, for instance – would be tempted to go for the bigger-engined model. This will eventually increase the gap between the respective premiums once more.

Category E – OPEN: $16,700

CAT E UP $200

Category E
May 2nd tender
52-week high: $19,510
52-week low: $13,301
Quota: 876
Bids: 1,345

It was interesting to see how bids came in relatively slowly in this category initially, only picking up towards the end of the bidding exercise. It could be that dealers were spooked by last round’s results, when Cat E ended up $619 higher than Cat B.

In a situation like this it can be difficult for dealers to use these transferable certificates without incurring small losses, since buyers would be unwilling to pay above the odds for a COE which will be used on a Cat B car anyway. No such worries this time round, but expect prices for the two categories to close up in the next round.