By Leow Ju-Len
CONVENTIONAL WISDOM SAYS that what goes up must come down, but in the case of the market for COEs (or Certificates Of Entitlement), the opposite is often true: what goes down, must come up.

Following a nasty tumble early this month when Category A COEs (for cars up to 1.6 litres, or taxis) dropped to $9,501 (a new 52-week low), the market saw a large rebound to bring the price to $14,100 this week.

That brings Category A back to where it was about a quarter of a year ago, but things continued to look soft at the Category B (for cars above 1.6 litres) end of the market. Prices eased by $88 to $13,301, barely half a grand above the category’s 52-week low.

The Open Category certificate (which can be used for any kind of vehicle) mirrored Category A to rise marginally, hitting $14,889 once bidding ended on Wednesday.

COE prices are sometimes like the pulse of the car industry – watching them move up or down can give you an idea of how well car dealers are doing because every bid for a COE is backed by a confirmed order for a new car.

But the prices are also a driver of the very market they reflect, in the sense that a big drop can awaken sleeping buyers. That’s precisely what happened with Category A: after the big tumble two weeks ago, car dealers slashed prices and the shoppers came hunting.

In fact, dealers had such a busy weekend after the price cuts that they were soon able to raise car prices. But buyers would not be deterred and continued to fill showrooms, leading to a second round of price increases for many distributors. Tan Chong Motors, for example, must have had two busy weekends in a row, because the company continued to raise prices until as late as Tuesday this week.

The motor trade may have been complaining for months that there are no customers out there, but this past fortnight should perhaps serve as a reminder that the Singapore car buyer is a simple creature at heart: when the bait is a damn good bargain (or the semblance of one), he usually bites.

Of course, Category B did not have the benefit of a big drop to stir up buyers, and things continued to be soft as result. One Borneo Motors salesman we spoke to during last week’s launch of the Lexus IS 250 told CarBuyer that he’s seen sales drop by more than 30 percent lately.

“My customers are all nervous,” he said. “They’re telling me that they’re not even sure if they’ll have a job next month, especially the bankers. How to commit to a new car?”

Remarkably, since that conversation the world has gotten even scarier – with insurance giant AIG leaning on the US government for an US$85 billion loan in order to survive, Merrill Lynch agreeing to be bought up by Bank Of America and Lehman Brothers completely collapsing, it’s safe to say that few people in the finance industry will be in a buying mood at the moment.

If it makes the motor trade feel any better, they’re not alone. The flames of free-spending have been doused by icy caution, bringing discretionary spending to a standstill islandwide.

A senior manager from a luxury goods conglomerate told CarBuyer, for instance, that August sales for her expensive watch brands are ‘terrible’. Indeed, she hasn’t seen sales figures so poor since the bad old days of SARS.

Bad news all around, then. Despite that, COE prices might just hold steady in early October, or even creep up a little. There are several reasons for that, but the main one is that the COE market opens again in three weeks’ time, instead of the usual fortnight. (COE auctions take place on the first and third Mondays of every month, but since September has five Mondays instead of four, we get an extra week’s break between bidding).

This extra week effectively gives dealers 50 percent more time to collect orders, which tends to bolster demand for COEs during the next auction. Historically, such occurrences of a ‘three-week bounce’ are common.

It’s also a good bet that many buyers from this week didn’t manage to clinch their Cat A COE, and they’ll have to try again next month. And with a newly-reduced number of COEs available from October onwards, the upcoming supply crunch is bound to nudge prices higher.

Combine that with an extra week’s worth of orders in the system, and plenty of leftover bidders from this week, and COE values might just stay relatively robust next time out, then. For once, though, it won’t necessarily mean that sales are healthy.

Category A – CAR (1600cc AND BELOW) AND TAXI: $14,100

UP $4,599

52-week high: $17,999
52-week low: $9,501
Quota: 2,035
Bids: 2,765

THE LEAP IN the number of bids for Cat A (from 2,172 to 2,765) this week tells you that fierce bidding is what pushed the price for this certificate up past the $14,000 level. That’s only half the story, though, for demand is a measure of both willingness and ability to pay for something. And because cars are sold with COEs packaged into the price, last round’s island-wide price cuts would have left dealers with little margin with which to put in strong bids. However, showrooms were packed enough for them to raise prices steadily, and it’s these raised prices which gave dealers the fuel to boost the Cat A market to this week’s result. Raising prices a grand here, a grand there… margins in the trade are so skinny that it all makes a difference.

Category B – CAR (ABOVE 1600cc): $13,301

DOWN $88

52-week high: $19,539
52-week low: $12,889
Quota: 1,127
Bids: 1,288

NOT MUCH TO report on the Category B front, which more or less traded sideways. This reflects a relatively stable demand for cars above 1.6 litres. Nevertheless, the spike in Cat A could tip some buyers over into a car with a large engine. With the narrower gap between prices, for instance, a Honda Civic 1.8 might just look tempting to the would-be Civic 1.6 buyer. Even if demand remains relatively stable, it’s interesting to ponder what will happen now that the LTA has cut the Category A and E Quota from next month, since these COEs are essentially substitute goods – when the price of one goes up, the demand for the other also increases, pushing its price up, too. Cat B will undoubtedly get pricier, but according to the trade, there’s a cap on how high it will go, since buyers simply no longer have the appetite to pay 18 or 19 grand for a COE.

Category E – OPEN: $14,889

UP $589

52-week high: $19,389
52-week low: $13,301
Quota: 880
Bids: 1,408

ALL THE SIGNS are there that the Open Category COE is just a proxy for Cat A, this time around. For one thing, there is only the matter of a few hundred dollars separating the two COEs. For another, it was interesting to watch how bidding unfolded. Ordinarily, COEs stay at $1 until the last ten minutes of bidding or so. Early on in the final hour of this week’s auction, however, Category A was already on the move, and way past the $13,000 mark. Then things began to slow down for Cat A, and the action seemed to shift to the Open Category, where prices began to climb towards the Category A level. All the while, Category B stayed a $1 until the traditional last-minute movement. So this week’s result looks like Cat A spillover to us, and with plenty of buyers missing out on their COEs this time, demand for these wildcard COEs could stay strong for a few bidding rounds yet.