By Leow Ju-Len and Colin Yong

GIVING CREDENCE TO complaints from dealers around the island that car buyers have disappeared, the market for COEs (or Certificates Of Entitlement) took a big tumble on Wednesday.

The largest fall was reserved for Category A certificates (for cars up to 1.6 litres, or taxis), which dropped a whopping $3,788 to $9,501. That puts the price for a Category A COE at the lowest it has been in a year, since the $8,118 crash recorded in late August 2007.

Category B certificates (for cars above 1.6 litres) saw a more modest fall of just $501 to $13,389, while the Open Category COE (for anything on wheels) bucked the trend by gaining $299 in price, to $14,300.

According to dealers, the reason there are no buyers can be traced to the usual factors: around 80 percent of cars on the roads here are less than four years old, so in an environment of belt-tightening amidst inflation fears, there are few people in the mood to trade in their relatively new wheels for the latest model in the showroom.

“The only ones buying are replacement buyers,” laments one senior executive from a multi-franchise dealership. “And there aren’t many of those around.”

Replacement buyers, as the motor trade calls them, are those who buy more because they have to than they want to, perhaps because they have a troublesome older machine to get rid of but absolutely need a car still.

For many people, even if the will to buy a new car exists, there is not always the ability. The proliferation of “full loans” – that is, 100 percent financing spread out over 10 years – means that a large number of drivers are locked into their car loans for years to come.

CarBuyer has come across one typical case, for example, of a Toyota Vios driver with six years to go before his loan will be fully repaid. With the current second-hand value of his car, however, early settlement of the outstanding loan amount will cost him some $10,000 in cash.

Being a good 10 grand poorer before even factoring in the purchase price of the next car is likely to change anyone’s mind about buying now.

Things seem a bit healthier at the pricier end of the car market, given that Category B prices have come down only a little, but there was actually a fairly big drop in the number of people bidding for one of these certificates this week.

Whereas the previous auction attracted 1,362 bids for a Category B COE, this time around only 1,195 had a go. In other words, the number of people competing for large car COEs exceeded the number of certificates available by less than a hundred, a worrying sign for the trade.

What happens next should be fairly straightforward, if history is any guide. The magnitude of Category A’s price drop should get people buzzing, car dealers will slash prices on Category A products, and there will be enough buyers to reflate the market in two weeks’ time.

There might even be enough bookings collected to keep demand for Category A COEs strong for a while yet, in fact.

That’s been the case in the past, anyway. If it doesn’t happen this time, then the trade will know that it’s really in trouble.

Looking further forward, the widespread expectation within the motor trade is that the LTA (or Land Transport Authority) will announce that the COE supply will be tightened in October.

That’s the middle of the Quota Year (which kicks off in May each year), and is traditionally the time when the LTA has a look at where it wants the vehicle population numbers to go, and tweaks the COE quota accordingly.

Cars have been scrapped or deregistered at a slower rate than expected so far this Quota Year, so the feeling is that fewer COEs are going to be made available – only the magnitude of the cut is what dealers are having to guess at.

“Actually, the LTA should have announced (the Quota adjustment) by now,” says one brand manager we spoke to.

If news of the Quota cut does materialise during the next fortnight, and people expect prices to rise once COEs become more scarce, then enough of them might bring forward their buying decision to boost prices in the next auction, which closes on September 17th.

With that on the horizon, another round of falling COE prices looks unlikely to us.

Category A – CAR (1600cc AND BELOW) AND TAXI: $9,501

CAT A DOWN $3,788

September 1st tender
52-week high: $17,999
52-week low: $9,501
Quota: 2,038
Bids: 2,172

AT JUST 2,172, the number of bids for Category A COEs hasn’t been this low since August 2004. Watching the bids unfold can tell you a lot, as well. This time around, Cat A was priced at $1 until some 10 minutes before bidding ended, and only a last-minute influx of bids made the price jump.

However, car dealers need a confirmed sale (with a buyer’s Identity Card number) to submit a bid, so it’s impossible that they would have closed all those sales in the last 10 minutes. So where did all those final bids come from? The trade suspects that taxi companies, which are allowed to bid for as many COEs as they want, were trying to score super cheap certificates when they saw prices hover at $1. As low as prices seem, then, the small car market could be even unhealthier than it looks.

Category B – CAR (ABOVE 1600cc): $13,389

CAT B DOWN $501

Category B
September 1st tender
52-week high: $19,589
52-week low: $12,889
Quota: 1,099
Bids: 1,195

AS WITH CAT A, there hasn’t been this little demand for a big car COE in quite a while. The Cat B premium cleared the $1 mark much earlier on Wednesday though, and the fact that it held more or less steady despite the much lower number of bids placed indicate that the market for higher-end cars is still healthy. Relatively speaking, at least.

The new Nissan Teana is said to have snagged hundreds of orders before its official launch last week, for instance, and dealer Tan Chong Motor Sales would have been bidding strongly to secure COEs to put as many cars on the road as possible. Sales of newish cars like the Audi A4 and Honda Accord are still strong too, so there’s no shortage of what the industry terms ‘quality bids’ in this category.

Category E – OPEN: $14,300

CAT E UP $299

Category E
September 1st tender
52-week high: $19,389
52-week low: $13,301
Quota: 880
Bids: 1,503

WHILE THE NUMBER of bids received in Cats A and B were at their lowest levels for over four years, demand for the transferable Cat E COE was much stronger this time round. There were 1.71 bids for every certificate available, and this saw the premium edging up by $299.

Dealers could be taking a small gamble. Knowing that the mid-Quota year adjustment is coming and it will most likely bring about a reduction in COE supply, they might have decided to stockpile some Cat E COEs to cater to the expected influx of customers trying to get their cars before premiums head north. Also, with the Cat C (goods vehicles) premium now at $13,889 (even higher than that of Cat B), dealers selling these vehicles could be bidding strongly in this category to secure COEs for their customers.