COE Prediction - January 2009 1st Bidding Exercise

Dealers have been reluctant to reduce the price of the bigger cars and we have $2,656 Category B COE quota premium in the last bidding exercise of 2008 ... a low not seen since the $50 freak result some years back. The latest round of price cuts will make big cars equally attractive to the small cars. Buyers should be able to pick the right car for their motoring needs at a similar price over features ratio.

Although there is a three weeks' elapse from the last bidding exercise, the demand should be flat as most folks are partying or away on holiday. So has anyone been to the showrooms? One motoring event you can check out this week is the Carrerista Jamboree 2008 but note that entrance ticket is going at $20 per head.

Prediction on December 29:
Category A: $5,000-6,000
Category B: $4,000-5,000

Verdict on January 7:
Category A: $5,001
Category B: $3,089

Fair margin for the Dealers?

How lucrative is the auto sales business? You can get the cost of new cars registered in the previous month from the LTA website.

The basic cost that dealers must pay includes:
1. OMV - Open Market Value. OMV is assessed by the Singapore Customs, based on the price actually paid or payable for the goods when sold for export to the country of importation. This price includes purchase price, freight, insurance and all other charges incidental to the sale and delivery of the car to Singapore.
2. Custom Duty - 20% OMV
3. GST - Goods & Services Tax 7% (OMV+Custom Duty)
4. ARF - Additional Registration Fees 100% OMV
5. Registration Fees - $140
6. COE cost

Thus, the difference between the selling price and the basic cost of the car is the margin including Selling, General and Administration Expenses (SG&A). Some of the expenses that I presume are the operating cost of the showroom, basic salary and commission for the sales team, marketing/advertising and the regular overheads of a business.

I checked on a few popular makes and models to see how much margin the authorized dealers make. Here are some interesting statistics for the month of November:

Honda Civic 1.8MT
Average OMV=$22,178
Total Basic Cost=$59,096
Selling Price=$74,000
Margin including SG&A=$14,904

Hyundai Avante 1.6A
Average OMV=$11,911
Total Basic Cost=$37,800
Selling Price=$52,999
Margin including SG&A=$15,199

Mazda 3SP
Average OMV=$15,308
Total Basic Cost=$45,558
Selling Price=$61,188
Margin including SG&A=$15,630

Mitsubishi Lancer 1.5 MIVEC GLS
Average OMV=$17,701
Total Basic Cost=$51,024
Selling Price=$58,588
Margin including SG&A=$7,564

Nissan Latio CVT 1.5L
Average OMV=$17,523
Total Basic Cost=$50,618
Selling Price=$59,500
Margin including SG&A=$8,882

Subaru Impreza 5D 2.0R-S AWD
Average OMV=$15,540
Total Basic Cost=$43,934
Selling Price=$61,388
Margin including SG&A=$17,454

Toyota Altis 1.8 Auto
Average OMV=$18,584
Total Basic Cost=$50,887
Selling Price=$63,988
Margin including SG&A=$13,101

I also scan through the list to see what is the lowest margin - it is just $1,867 for the Chery QQ 0.8L. The margin for the premium makes is even greater but then, the SG&A is proportionally higher. The pricing of cars depends on the business strategy of the dealer. If the dealer has a strong after sales servicing business, lower selling price may be used to increase the population of the make to generate higher revenue for its servicing business. Buyer may opt to purchase from Parallel Importers to save some money with a lower pricing but have to bear the risk of complications dealing with a small business. See the tales of the $2 COE for an example.

So do you think the dealers are making a fair margin? One idea is DIY - maybe our non-profit motoring associations may consider helping members to buy direct from manufacturers and bid for the COE.

COE Prediction - December 2008 2nd Bidding Exercise

The quota premium rebounded in the last bidding exercise as expected. There were more than 1,300 unsuccessful bids and possibly many dealers who did not put in any bid. Why not bid? The dealers priced the cars with an allocation of COE cost and would not waste the administrative cost of bidding if the result is above their allocation. Many of the dealers will ask their customers to top up their COE bids if they want to have their cars registered before the Chinese New Year.

Most of the buyers who locked their orders with the lowest price failed to secure their COE while those buying at a higher price got theirs. Unfair? Well, the dealers have to stay profitable to sustain the business.

Should you top up your bid? It depends on how urgently you need your ride. I think the quota premium will stay flat. Based on LTA published information, there are 96,213 passenger car (categories A, B and E) COEs available for bidding from May 2008 to April 2009. There are 9 more bidding exercises for this annual quota so about 36,000 COEs are still available before the quota is revised for 2009.

If you are thinking of bidding for your own COE, the better opportunities are the 2nd bidding exercise in January 2009 and the subsequent bidding exercises in February 2009 when historical trend shows lower demand post-CNY (Chinese New Year). What is the chance of another $2 COE? That is LOW since many individual bidders are coming in. However, I will not rule out COEs at the affordable level of $2,000-3,000. COE quota for 2009 will be announced in early March 2009 and the expected reduction is going to drive up the quota premium in March and April 2009.

I will publish a post soon on how to go about bidding for the COE on your own.

Prediction on December 9:
Category A: $6,000-7,000
Category B: $6,000-7,000

Verdict on December 17:
Category A: $6,200
Category B: $2,656