By Leow Ju-Len

THIS WEEK’S TALE of the COE market is really two stories in one, albeit two relatively straightforward yarns. While the market for Category A certificate (for cars up to 1.6 litres, or taxis) saw a $512 dip to $19,989, everything else headed for higher pricing ground.

Category B (for cars above 1.6 litres) climbed $780 to $23,180 (another five-year high) while Category E COEs (for anything on wheels) registered a $502 gain to end up at $22,401.

It’s fair to say that the weakness in the Category A market would have caught some by surprise. A few hours before COE bidding closed, one general manager from the franchise for a Japanese brand told us he was certain the market as a whole would be up.

“Everyone’s been slashing prices, and some of us (dealers) have promised to deliver cars to customers by Chinese New Year, so we have to bid aggressively to secure our COEs, no matter what,” he said. “Some customers will sue about such things…”

Over the past few weeks, the “New Year Promotions” have indeed made much about dealers’ ability to deliver new cars in time for people to impress their relatives. Some deals also involved the slashing of prices, in many cases by thousands of dollars.

Call it the local trade’s very own Stimulus Package, but the intention was to boost demand. Perhaps that’s why Category B and E crept up in price. So the main event worth looking into is the fall in prices for smaller cars.

“I’m not surprised,” says one sales manager we spoke to. “Those $6,000 discount deals are losing appeal. They’re great for one or two weeks but then fizzle out. Anyway, those who slash prices can’t bid strongly.”

The other thing worth noting is that Category A hit a scary high two weeks ago, and that could have chased some buyers away. “I’m sure some people got discouraged, and went to the used car market or just gave up for now,” says the sales manager. “It’s not like in Cat B, where richer people play.”

If so, some buyers are clearly more sensitive to prices than others. The thing to note about the COE market, then, is that perhaps there were two stories to tell this week because there were two kinds of buyers involved.

Why dealers want COEs to cost $30,000

IT SEEMS COUNTER-INTUITIVE, but some car dealers are wishing that COEs would become far more expensive than they already are.

Don’t car sales slow down when COEs shoot up? In a sense they do, but ultimately, the size of the market is determined by the COE quota anyway, so 100 expensive COEs would yield the same sales as 100 cheap COEs – in other words, 100 cars.

That being so, dealers are ultimately indifferent as to how much COEs are going for - they pass the cost on to you, anyway. What’s interesting to them is the direction of the COE market. There, the thinking is that if prices went up, it would actually be good for sales.

Very often the key to selling a new car is to take someone’s existing car off him. But with a great number of cars bought with 10 year loans and heavy financing, too many people are stuck with their present cars. They owe more money than their cars are worth, and the result is that people are hanging onto them for longer, unable to offload them for a new car.

Three years ago around 65 percent of cars on the roads were relatively new - that is, three years old or younger - but in 2008 that figure dropped to 58 percent. As of the end of last year, just 47 percent of cars were under three years in age.

Given the above scenario, dealers say a big jump in COE prices would help, by making new cars more expensive and bolstering used car prices in the process. New and used car prices move in tandem because, in economic terms, they are substitute goods - when the price of one goes up, demand for the other rises in sympathy.

“Let’s say I still owe $8,000 for my car loan after I trade in my car. If I want a new car I need to come up with all that in cash,” says one general manager for a multi-brand franchise. “But if COEs were significantly more expensive, maybe my car would be worth $8,000 more? I don’t mind if my next car is also more expensive, because I can simply finance the extra amount. The important thing is, I can get rid of my old car.”

That scenario would spoil things somewhat for the first-time car buyer with nothing to trade in, of course, and a $30,000 COE is an instinctively painful thought for us, the car-buying public. But if such a thing came to pass, not everyone would be feeling down about it…
Category A – CAR (1,600cc AND BELOW) AND TAXI: $19,989

(down arrow $512)

52-week high: $20,501
52-week low: $1,020
Quota: 1,154
Bids: 1,326

TWO WEEKS AGO there were 1,673 bids for a Cat A COE, and this week that number dwindled to 1,326. If that isn’t a sign of weakness in itself, things are more grim when you consider that our spies say that a taxi company put in 300 bids. If not for those, would the market have taken a tumble?

It’ll be interesting to see what happens in three weeks’ time, when the COE game resumes. The New Year weekend will be a ‘lost’ one for the trade, so demand could stay weak, resulting in another dip.

Category B – CAR (ABOVE 1,600cc): $23,180

(UP arrow $780)

52-week high: $23,180
52-week low: $689
Quota: 693
Bids: 930

ANOTHER FORTNIGHT, ANOTHER five-year high for Category B. That sounds a little more scary than it actually is, though. What is a $780 increase if you’re buying a Mercedes-Benz, after all? And we hear, incidentally, that people are buying them aplenty.

The car business does have peaks and troughs, though, and if there was a pre-Lunar New Year rush, then the following weeks could be quiet. So, our money is on a slight dip in March, before a longer upward trend takes hold.

Category E – OPEN: $22,401
(UP arrow $502)

52-week high: $22,401
52-week low: $3,000
Quota: 601
Bids: 1,069

IF CATEGORY A looked weak, then it’s likely that many of these Open certificates will have ended up in the Cat B pool where buying activity stayed decently strong. Interestingly, only 1,069 bids were made (versus 1,322 last time out), and yet the price has gone up - that tells you that these were no-nonsense bids.

Just to confuse the story, the Category C COE (for Commercial Vehicles) closed at $21,390 ($490 more than previously), so it’s likely that some buyers put new lorries or buses on the roads with a Cat E certificate. Only 165 Cat C pieces were available, after all…