By Leow Ju-Len

JUNE HAS BROUGHT no joy for car buyers hoping for cheaper COEs, with the market hitting new highs for 2009 yet again.

The price for a Category A COE (or Certificate Of Entitlement), which is needed to register cars up to 1.6-litres or taxis, wafted heavenward to $11,690, a full $1,801 more than it cost a fortnight ago.

As for the Category B certificate (for cars above 1.6 litres), buyers had to pay $11,889, which amounts to a heady increase of $2,709 over last month’s final COE auction.

And if the buzz about late May concerned the return of the $10,000 COE, Category E (which can be used to register anything on wheels) will give tongues something to wag about, having soared to $12,901 this week.

The last time a Category E certificate cost more than that was in early October last year, incidentally, just about when the world economy blew its head gasket.

Of course, things aren’t back to normal in the car trade, and won’t be for some time yet, but the COE supply is much tighter this year than it was last. That being the case, it doesn’t take a huge amount of demand to spike prices.

Indeed, this current market situation brings to light how a round of cheap COEs can bring about much pricier ones a few months later.

Even if it were true that sales have been abysmally slow, car buyers who acted a month or two ago are very likely still be a factor in the current fight for COEs.

“Our showrooms are empty, but I believe the Koreans still have a backlog of orders to clear,” says the general manager of a distributorship for a Japanese marque.

Hyundai and Kia have had blockbuster months, true enough, and it’s thought that the latter is competing for COEs for customers who signed for their new cars in April, perhaps even March.

Why the delay?

Firstly, it’s common practice for car dealers to bid for COEs for customers only when they have stocks to deliver. Given that a COE is valid for a lengthy six months, the practice probably has to do with preserving a dealer’s cash balance.

So while Cycle & Carriage had been selling Kia Ceratos like hotcakes since February, only a few customers got their cars then. It’s only in May that stocks have arrived in force, with more arriving in June, leading them to put in serious bids for COEs.

(Some of these bids, incidentally, will be backed by a bit of extra funding from Kia customers who were invited to ‘top up’ their COE bids by C&C.)

Second, just because you have a stampede in the showroom, there is no reason to deliver every car you sell at once.

Again with Kia, C&C is thought to have picked up 700 orders in a single month for the Cerato Forte alone. Flushing all those orders at once in the COE auction system would be considered madness in the trade.

It would only push up prices dramatically, thus destroying profit margins on cars sold with cheap COEs to begin with, and could even spook buyers away from showrooms, spoiling it for other dealers in the process.

Far better, then, to spread all those orders around a bit. Not for nothing do car dealers ask you to give them six chances to nab you a COE, after all.

In any case, the tight supply of COEs was bound to cause prices to react sharply to any jump in demand.

The quotas are so small now that they are almost laughably easy to fill. Just 760 Category B certificates were up for grabs this week, for example. For some perspective, Germanys ‘big three’ luxury players (Audi, BMW and Mercedes-Benz) can soak up half of those COEs by themselves every fortnight.

Where are all these buyers coming from, one might ask? Isn’t everyone broke at the moment?

In economic terms, demand is defined as the willingness and ability to pay for something. Back when COEs were dirt cheap, and looked set to stay that way for a long time, perhaps buyers were simply biding their time instead of committing to a new car.

Now that prices have been trending upwards, it might be the case that the waiting game is now over, leading buyers to finally start buying.

We assumed that the ‘ability’ part of demand was lacking, in other words, but perhaps it was always there. Till now, maybe it was the ‘willingness’ part that had been dormant all along.

That doesn’t bode well for the prospect of cheap COEs, of course. But perhaps some perspective is in order here, too. Those prized certificates may no longer be at their absolute cheapest, but in the whole 19-year history of the Quota System, since when have $12,000 COEs been considered pricey?

Category A – CAR (1600cc AND BELOW) AND TAXI: $11,690
UP $1,809
52-week high: $17,999
52-week low: $2
Quota: 1,401
Bids: 1,967

THE KOREANS ARE instantly blamed for any jump in COEs these days, but sources at Hyundai had this to say when confronted with the accusation: “It’s not us!” Some suspicion lies in the direction of Toyota and Honda, but then again it’s worth repeating that the quota is now so small that it’s easy for the COEs to be oversubscribed.

Kia soaks up about a third of them, while Hyundai might grab a little under that. Throw in Toyotas and Hondas, and it’s easy to see how the competition for COEs can intensify quickly.

Category B – CAR (ABOVE 1600cc): $11,889
UP $2,709
52-week high: $19,539
52-week low: $200

Quota: 760
Bids: 1,131

IT’S NOT TRUE that everyone is selling dismally. Although still a relatively small player, for instance, Audi is enjoying one record month after another, on the back of an ongoing new model offensive. That shows that buyers (and the money) are still out there, and with such a small quota to fill it’s likely that we’ll see this COE making more dramatic jumps in future.

Car prices are generally up by a little more than this week’s $2,709 jump – Lexus cars cost $3,000 more now, for instance – which is a sign that dealers anticipate another rise.

Category E – OPEN: $12,901
UP $2,855
52-week high: $19,389

52-week low: $3,000

Quota: 719

Bids: 1,335

OPEN CATEGORY COES are perhaps the most useful of all, since they’re fully transferable and can be used for any type of vehicle. Dealers often stock a few of them in hand, perhaps to register cars immediately for early-bird buyers when a new model is launched, or even to keep repeat or VIP customers happy by expediting delivery of their new car.

That so, it’s often an indicator of the market’s mood. When there’s a meaningful premium to pay for an Open Category COE, that’s usually a sign of optimism.