At the heart of the matter: what would the experts of the automotive industry change to the COE system?

SINGAPORE: On Wednesday July 20, the Certificate of Entitlement (COE) premium for the Open car category reached a record S$114,001, surpassing a 28-year high set two weeks earlier. Premiums also increased across the board.

What explains the price increase? Is the entry of private hire vehicles and the explosion of a delivery economy a factor? Could the system make adjustments or is it working exactly as intended by pricing cars beyond the reach of those who cannot afford them and therefore reducing the car fleet?

Steven Chia, host of CNA’s Heart of the Matter podcast, posed these questions to his guests: Associate Professor Terence Fan of Singapore Management University, Arthur Wong, Managing Director of ACM Automobiles, and Aaron Tan, CEO of Carro, a online car market.

Here are some highlights of their conversation:

Why are COE prices so high now?

Aaron Tan: We have more re-registered cars…more than…10 years ago or two decades ago. As a result, there are significantly fewer COEs today than 10 years ago. Second, … the demand today is not just from the consumer perspective, it is also coming from the private rental vehicle side, right? So if you think of all the Grab and Gojek drivers, they need a vehicle,…that also increases the demand…And the last thing I would say is that with a lot more EVs coming to the market, we see a triple whammy (of) trouble here… So prices being where they are today was no big surprise to us.

Assoc Prof. Terence Fan: If it is simply replacing one car with another, there is no net change or net increase in demand… Let’s say we have 100 people or companies wanting to buy cars. Now there are 101, it is because of this 101 person or entity who wants to buy a COE at any price… This will drive up the overall prices. It’s not like… you can blame the original 100 car owners, or you can identify this as a new owner. I think it’s very difficult. But as long as you have that extra person willing to pay, it drives up the price for everyone.

Q: Is there an influx of wealthy people who are willing and able to offer a factor?

Arthur Wang: Yes, right now people are more apt to buy continental cars, more expensive cars, sports cars. The influx of foreigners is (that) they have pushed the thirst for luxury vehicles. So yes, I agree.

Q: Have private rental companies affected the system?

Assistant Professor Terence Fan: For the private rental companies, if you look at how many of them have actually placed bids… you might find that they actually don’t bid very much. They don’t do a lot of offers.

Aaron Tan: So those PHV (Private Hire Vehicle) companies that say they’re not actually the cause of it are probably true. But to say that it has absolutely nothing to do with platforms is also incorrect, isn’t it? Because the demand is certainly fueled by the fact that there is a demand for PHV vehicles. There’s a demand for Grab food deliveries and stuff like that. As a result, all of these people are just doing their job properly. But they indirectly caused the COE to increase…because there are more people bidding for these cars.

Q: Does the COE system need to be changed? How?

Arthur Wang: Have a fixed premium for each COE category to avoid market volatility. I just want to cut this COE auction thing, just a fixed price for this category and a fixed price for this category. That’s what I think is best for people.

Assoc Prof. Terence Fan: Guide or lower the initial bid price to manage speculative auctions. I think for me, I was just looking at what Arthur was saying about the initial suggested bid price. It actually seems to trigger a secondary reaction from bidders who say, “Oh, the starting price is S$80,000, so I have to bid more.” So I’m actually going to try to experiment, reduce that or maybe get rid of it, but give some advice. So hopefully this will reduce some of the biases that this initial starting bid may actually cause to bidders.

Aaron Tan: The first is to keep it simple, right? Secondly, adding another category in itself for special needs could be interesting so that we can ensure that vehicles are more accessible.

Q: What advice do you have for people looking to buy a car?

Arthur Wang: Just buy one that suits your budget and needs. I think that’s the most important.

Aaron Tan: Obviously, (buy a) used car, don’t buy a new car.

Assoc Prof. Terence Fan: I think, in fact, that you have to consider public transport and use car-sharing services before having your own car.

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