By Colin Yong

GOOD NEWS FOR car buyers: not only did fuel prices drop for the fifth time in less than a month this week, Certificate of Entitlement (COE) prices also fell across the board in the first tender exercise in August.

The Category A certificate (for cars up to 1.6 litres, and taxis) shed a substantial $1,600 to close at $12,501, its lowest level since early February if you discount the freak $11,009 result in May.

This wasn’t surprising since car dealers have been complaining of particularly weak sales for the last month or so. Many thought the previous round’s Cat A COE premium of $14,101 was artificially high and didn’t reflect the true demand for new cars, especially mainstream models.

This could explain why most major dealers have now cut retail prices by almost the same amount as the fall in the premium. Honda, Nissan and Toyota took between $1,200 and $1,500 off the prices of their Cat A models, indicating that they don’t expect a huge influx of buyers and a subsequent rebound in the premium to the $14,000 level.

Subaru went even further and reduced the price of its 1.5-litre Impreza by a hefty $3,300. It looks like the sub-$13,000 Cat A COE might be here to stay for a while.

Remember that the unique thing about buying new cars in Singapore is that they are always priced in anticipation of how much the next round of COEs will cost, rather than in response to the latest results.

When the Cat A COE dipped by $4,600 a few months ago, for example, some dealers lowered prices by only $2,000 because they were sure the certificate price would make a sudden U-turn a fortnight later.

And it did, going right back up by $4,692 in the next round. Dealers who substantially cut their prices may have got the bookings but they would not have had the margins to big strongly for COEs to actually register the cars.

The latest price cuts ought to increase showroom traffic somewhat, although dealers are not holding their breath. “There are still too many uncertainties about the economy,” said the sales manager of a Japanese brand. “I can’t be sure that there will be a big crowd in the showroom this weekend.”

“A $1,600 drop is relatively big, but there will still be a large chunk of potential buyers who will prefer to wait and see if it goes down further,” said a general manager of a major distributor.

The Cat B COE (for cars above 1.6 litres) premium dropped by $1,346 this week, but remember that it already fell $1,266 in the previous round of bidding. At $12,889, this certificate is now 34 percent cheaper than it was just four months ago, and it hasn’t been cheaper since February 2007.

There is no shortage of strong-selling Cat B models like the Audi A4, Honda Accord and Toyota Wish, but most Sports Utility Vehicles (SUVs) also fall into this category and their sales were hit hard in recent months by the record high fuel prices.

As we’ve often said before, an equalisation of the Cat A and B premiums opens up new flexibility to car buyers, who might decide that it’s worth shelling up the small premium for a Corolla Altis 1.8 over the 1.6, for instance.

Overall though, the general feeling in the market is that there’s still no urgency to buying cars. “Not many people think of a new car as an absolute necessity now, so they will only commit if we offer them really special deals.” sighed the general manager we spoke to. “It’s very much a buyers’ market at the moment.”

Category A – CAR (1600cc AND BELOW) AND TAXI: $12,501

CAT A DOWN $1,600

Category A
August 1st tender
52-week high: $17,999
52-week low: $8,118
Quota: 2,035
Bids: 2,267

THE BID RATIO (the number of bids divided by the number of COEs available) for Cat A fell sharply from 1.20 to just 1.11 on the back of weak demand, which explains the fall in the premium. There just aren’t that many buyers in the market, and even perennial favourites like the Mitsubishi Lancer and Toyota Corolla Altis aren’t selling in the same numbers as before.

A slowdown in the number of new taxi registrations could also explain the lower number of bids. Now that the new taxi operators have built up their fleets, it’s mostly the replacement of the older models that is driving new cab sales.

Category B – CAR (ABOVE 1600cc): $12,889

CAT B DOWN $1,346

Category B
August 1st tender
52-week high: $19,589
52-week low: $12,889
Quota: 1,104
Bids: 1,253

CAT B TOO saw a bid ratio decrease although it was less pronounced than Cat A’s, going from 1.19 to 1.13. It could have been lower still had the bidding price for the Cat E COE not hit the $10,000 level while Cat B was still stuck at $1. This would have led those who had yet to place their bids to join the Cat B fray instead, in the hope that a freak result might occur. Of course, all this did was to drive the premium up in the last few minutes of bidding…

Still, the fact that the $12,889 result represents a 52-week low should give the (admittedly less price-sensitive) buyers at this end of the market something to think about.

Category E – OPEN: $14,101

CAT E DOWN $757

Category E
August 1st tender
52-week high: $19,389
52-week low: $13,301
Quota: 884
Bids: 1,229

A $1,212 discrepancy between the Cat B and E premiums is bad news for dealers who might have secured some of these transferable COEs for the flexibility they give in the registration of cars. Buyers would be unwilling to pay the $14,101 face value for one of these certificates, especially since its rebate value is pegged to the much lower Cat A or B premium in this round, depending on what kind of car it’s used for.

The dealers’ only hope is to find buyers who are willing to pay extra for the privilege of getting their new cars almost immediately. Otherwise, they’ll just have to write off the losses as part and parcel of the COE game.