By Colin Yong
IT’S OFFICIAL: THE car market is in the doldrums. The Category A Certificate of Entitlement (COE) – for cars up to 1.6 litres and taxis – shed $299 to close at $13,801 for October’s first bidding exercise.

While this may at first seem to be a modest fall, closer examination of the circumstances reveals it to be the surest sign yet that demand for new cars is in a downward spiral.

First, the Land Transport Authority announced last month that the supply of Cat A COEs would be cut by 9.6 percent from October to next March as part of its mid-quota year revision, so there were already fewer certificates up for grabs this week. Usually, this drop in supply alone would be enough to nudge prices up.

Then there’s the fact that there was an extra Monday in late September, resulting in a three-week gap between COE bidding instead of the usual two. This quirk in the schedule happens just four times a year, and it gives dealers an extra week to collect orders.

In the past, it invariably resulted in a spike in COE prices, something which the industry terms a ‘three-week bounce’. Nothing of that sort happened in Cat A this week though, which simply means buyers aren’t buying.

And let’s not forget that the Singapore Motorshow 2008 ran its course within the three-week break. True, only three car brands were represented there but market leader Honda was one of them and it was offering generous discounts on certain models. Even this failed to boost the number of Cat A bids.

In fact the common consensus among dealers is that the Cat A premium would have slumped even further had there not been over 700 unsuccessful bidders from September’s second bidding exercise. Remember that the Cat A COE nosedived to $9,501 a month ago, driving up buying activity and seeing 2,765 bidders compete for 2,035 Cat A COEs a fortnight ago.

Since every bid placed in Cat A is linked to a genuine buyer, it’s safe to assume that say two-thirds (or 487) of those who didn’t get their certificates would have joined the bidding fray again this week.

Now, the statistics for the latest round of bidding show that 2,320 bids were placed for 1,856 available Cat A COEs, a difference of 464. In other words, if not for the spillover from the last round, there may have been fewer new car orders placed than COEs available.

This wouldn’t surprise the dealers CarBuyer spoke to, all of which said business has been terrible even on weekends. “Over the Formula One weekend our showroom was pretty deserted,” said the assistant manager of the distributor for a Korean brand. “We thought that was because everyone was caught up in the race, but the following weekend was even worse!”

Plunging stock prices and fears of a global economic crisis in recent weeks have clearly dampened the public’s car buying mood, especially those in the market for mass market Cat A models.

Cat B (cars above 1.6 litres) appears to be in better shape, recording an increase in the number of bids placed in this round. The price of the certificate climbed by $1,099 to hit $14,400, its highest level since early July.

Bigger cars are usually bought as replacements, which explains the more consistent demand for the Cat B COE compared to the Cat A one.

What kind of price movements can we expect to see in a fortnight’s time, then? Cat A is likely to continue its decline as the backlog of orders from last month is cleared and the world’s financial woes continue.

This is the situation dealers dread most: buyers tend to adopt a wait-and-see approach since it’s pretty clear that further drops are on the cards, and sales become even more sluggish.

Then again, in the current economic climate, even a sudden fall in COE prices may not be enough to stir up serious car buying activity.

Category A – CAR (1600cc AND BELOW) AND TAXI: $13,801

CAT A DOWN $299

Category A
October 1st tender
52-week high: $17,999
52-week low: $8,118
Quota: 1,856
Bids: 2,320

WATCHING THE ‘LIVE’ bidding take place on the last day of a bidding exercise tells you a lot about the market . For this round, the Cat A premium stayed at $1 (fewer bids than COEs available) until 3.20pm, just 40 minutes before the tender ended. Once the breakthrough point was crossed, the premium jumped straight to $9,000 instead of inching its way upwards.

What does this show? That there are few speculators placing low bids in the hope of securing a cheap COE if there’s a sudden plunge. So although the number of bids dropped compared to the last round, the vast majority were ‘quality bids’ linked to serious buyers.

Category B – CAR (ABOVE 1600cc): $14,400

CAT B UP $1,099

Category B
August 1st tender
52-week high: $19,589
52-week low: $12,889
Quota: 1,132
Bids: 1,338

THE BID RATIO (the number of bids divided by the number of COEs available) for Cat B went from 1.14 to 1.18, indicating a fairly steady demand for larger cars. The recently launched Nissan Teana is selling quite well, and dealer Tan Chong Motor Sales would be bidding aggressively to translate all those orders into actual registrations, propping up the COE price.

The fact that the Cat A COE cost nearly $800 more than the Cat B one in the last round could also have caused some buyers to opt for, say, a Toyota Corolla Altis 1.8 instead of the 1.6. Now that the balance has swung the other way again, the reverse could happen.

Category E – OPEN: $15,058

CAT E UP $169

Category E
August 1st tender
52-week high: $19,389
52-week low: $13,301
Quota: 754
Bids: 1,144

IN THE PAST, the transferable Open Cat COE was either used as a proxy for Cat B, or stored by dealers who wanted them for the immediate registration of cars between bidding exercises. But it’s likely that neither is happening now – which dealer would hoard COEs when he doesn’t know when the next buyer will step through the door?

Also, with the Cat C COE (for goods vehicles and buses) premium now at a sky-high $15,899, many of the successful Cat E bidders could be using the certificates to register commercial vehicles instead of cars. Perhaps Cat B car sales aren’t as robust as they seem, after all…