COE Analysis: Is worse to come for COE prices?



Prices have started to climb for COEs, and in some cases, significantly. Is this the start of a worrying trend?

SINGAPORE

Should you be worried? Shortly before we went to print the Land Transport Authority (LTA) did its usual thing and auctioned off Certificates of Entitlement (COEs). Once the final hammer fell at the second auction in March (and the sixth round this year), prices for the car certificates climbed to their highest so far in 2019.



The Category A COE (for cars with up to 1.6 litres of engine capacity or 130 horsepower under the bonnet) inched its way up to S$26,659, which isn’t too salty considering it’s about a thousand dollars above 2019’s cheapest price (S$25,689, recorded in early February), and only a little about the average price for the last three months (S$26,175).

But if you want to get a bit sweaty, have a look at the Category B COE, for cars with more than 1.6 litres or 130hp to their name. The price for that hit S$39,401 — a full seven grand higher than that the start of this year, and significantly above the three month average of S$35,411.

The Open Category COE (for anything with at least four wheels and an engine) climbed past all the others to S$41,000. One of those cost just S$32,909 in January.

The car trade must be doing nicely, with lots of people are merrily buying new cars.

Except maybe it isn’t people doing all the buying?

What worries car dealers is that the Private Hire car sector might be heating up again; the Grab-Uber war might be over, but now Go-Jek wants in. There are plenty of PH cars on the road now, but after peaking in 2017 and then declining, their numbers are creeping back up. As of February this year, there was 67,788 PH cars here, compared to 66,079 three months before that.

The strength of the Category B COE pricing could well come from that bit of the market. “Private hire companies only want hybrids now,” one marketing manager for a Japanese brand says. “Drivers mostly want to rent hybrids.” And hybrids are usually Category B cars.

Another bit of data worth looking at concerns the nature of COE bids. Rember, demand for something is defined as the willingness and ability to pay for it. The ability part has obviously been strong — even though Category B’s price was the highest in late March, that particular auction actually saw the fewest bids of all in 2019.

In order words, fewer people tried to buy a Category B COE, but ended up driving the price up anyway. They must have bid a hell of a lot, which is the behaviour of a start-up like Go-Jek that wants to get going.

(And before you blame car dealers for putting in aggressive bids, consider that the more a dealer pays for a COE, the less profit he keeps. Like everyone else, a sensible car dealer wants to get a COE as cheaply as possible.)

What happens next for the market? It might be too early to say if the Private Hire is muscling in ordinary buyers, and worryingly, even if it hasn’t happened yet it doesn’t mean it’s not going to happen at all.

Nor will it matter if PH companies confine themselves to hybrid or Category B cars, and leave Category A to the rest of us. When Category B cars become painfully expensive, people will be pushed into the Category A market and compete for COEs there. If the Skoda Karoq starts to climb out of reach, maybe that Kia Stonic doesn’t look too bad?


The various car category COEs are what economists call complementary goods — whenever the demand for one increases, the price for the other goes up. Cheery stuff, to be sure, and ample reason why nobody likes economists.

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Leow Ju-Len
Leow Ju-Len is a lot older than he behaves. He's been writing about cars for 23 years. Someday he might do it coherently. Ju-Len believes in world peace and V8s, but not necessarily in that order.