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Heart of the Matter: What would car industry experts change about the COE system?

Why are COE prices so high now? Have private-hire companies affected the system? Should the COE system be changed? Experts weigh in on these questions on CNA's Heart of the Matter podcast.

Heart of the Matter: What would car industry experts change about the COE system?

File photo of cars in a parking lot (Photo: iStock)

SINGAPORE: On Wednesday (July 20), the Certificate of Entitlement (COE) premium for the Open Category of cars hit a record S$114,001, surpassing a 28-year high set two weeks earlier. Premiums rose across the board as well.

What accounts for the increased prices? Is the entrance of private-hire vehicles and the explosion of a delivery economy a factor? Could the system do with tweaks or is it working exactly as intended by pricing cars out of the reach of those who cannot afford it and therefore reduce the car population?

Steven Chia, CNA’s Heart of the Matter podcast host put these questions to his guests: Associate Professor Terence Fan of the Singapore Management University, Arthur Wong, managing director at ACM Automobiles and Aaron Tan, CEO of Carro, an online car marketplace.

Here are some highlights of their conversation:

Why are COE prices so high now?

Aaron Tan: We have more cars being re-registered … more than … 10 years ago or two decades ago. As a result, there's definitely less COE today than there was 10 years ago. Number two, … demand today is not just from the consumers point of view, it also stems from the private-hire vehicle side of stuff, right? So, if you think about all the Grab and Gojek drivers out there, they do need a vehicle, … that also increases the demand … And the last thing I would say is, with a lot more electric vehicles coming up in the market, we are seeing a triple whammy (of) issues here … So, the prices being where it is today wasn't a big surprise to us.

Assoc Prof Terence Fan: If it's just replacing one car with another, there's no net change and no net increase in demand ... Let's say we have 100 people or companies wishing to buy cars. Now there's 101, that is because of this 101 person or entity who wants to buy a COE at whatever price ... That will push the overall prices. It's not like … you can blame the 100 original car owners, or you can pinpoint this as a one new owner. I think it's very difficult. But as long as you have that one extra person willing to pay, that pushes the price up for all.

Q: Has an influx of wealthy individuals who are willing and able to bid a factor?

Arthur Wong: Yes, right now, people are more adept at buying continental cars, more expensive cars, sports cars. The influx of foreigners is (that) they've driven the thirst for luxury vehicles. So yes, I agree.

Q: Have private-hire companies affected the system?

Assistant Professor Terence Fan: For the private-hire companies, if you look at how many of them have actually placed bids … you may find that actually, they don't bid a lot. They don't make a lot of bids.

Aaron Tan: So, these PHV (private-hire vehicle) companies coming out saying that they are not actually the cause of it is probably true. But to say that it is entirely nothing to do with the platforms is also incorrect, right? Because the demand is definitely stoked by the fact that there is demand for PHV vehicles. There's demand for Grab food deliveries and stuff like that. As a result, all these people are just doing their jobs right. But they have indirectly caused the COE to be higher … because there are more people bidding for these cars.

Q: Should the COE system be changed? How so?

Arthur Wong: Have a fixed premium for each COE category to avoid volatility in the market. I want to just cut this COE bidding thing, just one fixed price for this category and one fixed price for that category. That's what I feel it's the best for people.

Assoc Prof Terence Fan: Guide or lower the initial bidding price to manage speculative bidding. I think for me, I was just looking at what Arthur was saying about the initial suggested bid price. That seems to actually trigger some secondary reaction in bidders that they say, "Oh, the starting price is S$80,000, so I got to bid more." So, I will actually try to maybe experiment, lowering that or maybe getting rid of that, but provide some guidance. So that sort of hopefully will reduce some of the biases, that that initial starting bid may actually cause the bidders.

Aaron Tan: Number one is to just keep it simple, right? Number two, really adding another category by itself for special needs might be interesting so that we can make sure that vehicles are more accessible.

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

Arthur Wong: Just buy one that suits your budget and your needs. I think that's most important.

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

Assoc Prof Terence Fan: I would think, actually, consider public transport and use car sharing services before getting your own car.

Listed to the podcast:

Source: CNA

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