How do COEs really work?



How to COE

When is the best time to buy a car, given what COE market is doing? And are car dealers really reckless when it comes to COE bids? Answers to these, and more!

SINGAPORE — Imagine you sell sandwiches for a living. It seems like a straightforward business, with your fortunes rising and falling in accordance with how yummy you can make them.

But now imagine one simple but crucial complication: you have to set a price for your sandwiches and sell them at that price… but you have no idea how much the bread will cost you.

Welcome to the world of the Singapore car dealer. Thanks to a quirk in the COE (or Certificate Of Entitlement) system, dealers here have to operate on just that complication: they must price their goods without knowing their cost.

HOW COE BIDDING WORKS
Car dealers basically make a guess about what COE prices will be, and set a price for a car/COE bundle.

So if you’re a dealer who needs to sell a car for $60,000 to cover his costs, and you think the relevant COE will cost $40,000, you end up with a price of $100,000.

What happens next is complicated, and a little scary.

A customer walks in and books the car for $100,000. Your job is to secure the COE for the customer by placing a bid at the next COE auction. These take place 24 times a year, usually on the first and third Mondays of every month.

Just to be clear, the Land Transport Authority (LTA) doesn’t set COE prices. It only fixes the number of COEs available, and lets the free market determine the price through an auction mechanism.

Bidding lasts three days and, unlike at the famed Tsukiji fish market, there’s no incentive for being an early bird, and it’s not like gladiatorial combat waged with wallets. Instead, bidding is done electronically, and the price is set at the lowest successful bid.

It’s worth noting that for the car categories, COEs are not transferable. So it’s not the case that car dealers can snap up all available COEs between them and hold customers to ransom. Instead, because they are non-transferable, COEs are only bid for after there is a confirmed customers for a car, and not before.

Back to your conundrum: How much to bid? Well, you could try a low bid, like $30,000, but then you might not win a COE and your customer would have to wait at least a fortnight for you to try again.

How about a high bid like $50,000? That’s almost certainly going to get you a COE, but… you only factored in a price of $40,000. Whose pocket does the extra money come out of? (Hint: It’s not the customer’s!)

THE TRUTH ABOUT COES
From the above, two things are clear. One, car dealers generally want COE prices to fall.

It’s easy to accuse dealers of bidding exorbitantly for COEs and passing the cost on to the customer, but that simply isn’t the case. An unexpected rise in COE prices eats into dealer margins — it’s like selling a sandwich and then watching the price of bread climb before you have to deliver that troublesome sub.

In fact, figures from the Land Transport Authority show that car dealers are generally conservative when it comes to COE bidding. In early April’s COE auctions, the bids in the car categories were fairly close to the final price — for the Category A COE, nearly 80 percent of the bids were less than 5 percent above the final price.

The data shows that motorcycle and commercial vehicle buyers (or their dealers) were more reckless or aggressive, placing far more bids at a level high above their relevant COE price.

The second truth about COEs? If you go car shopping after a COE crash, it’s probably too late — those “cheap” COEs were for buyers who bought their cars earlier. It’s unreasonable to expect car dealers to slash their prices after a big fall in COE prices, because after collecting your order they have to secure a fresh COE for you, for an unknown price.

“I see a biiig fall in Cat A… Or maybe a biiig rise.”

That makes it hard to determine when the best time to buy a car is, but perhaps the takeaway here is that the COE game is a risky one for car dealers.

For your part, trying to time your purchase to perfection requires an ability to gaze into the future. That being so, perhaps the best time to buy a car is when you feel comfortable with current pricing, and able to afford a model that would suit your needs well.

In other words, focusing your efforts on finding the perfect car will serve you far better than trying to score the perfect COE price.

WHAT TO DO
Indeed, so far we’ve taken a close look at where your motoring dollar really goes, we’ve explored the key differences between buying a used car and new one (including how a shiny new car can actually be cheaper than a second-hand one), and we’ve examined the major aspects of affordability, from what you need to know about car loans in Singapore, to how much to budget for monthly expenditure.

All of that knowledge is vital to making the best possible car-buying decision, because there’s nothing worse than being seduced by a car that later turns out to be a financial calamity.

The joy of a new car purchase does fade eventually, but making a wise decision can help to make your relationship with a car a deep and rewarding one. It’s one thing to buy happy, but quite another to drive happy.

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