Wednesday, June 13, 2012
Fewer Cars Scrapped
Business Times has reported today that the scrap rate for vehicles was flat in May 2012 and dealers anticipate that COE quota premium for small cars will hit $80,000 and big cars will test the 6-digit $100,000 mark.
The demand for Category A COEs for small cars will be fuelled by the competitive taxi companies and premium makes with more powerful smaller engines. It seems that the mass market makes may be priced out if LTA limits the "cooling" measures to the followings:
1. The deferment of the planned cut in allowable annual vehicle growth rate. The rate will be cut to 1% from August, instead of 0.5% which will be effective from February 2013.
2. An exercise to reduce COEs to compensate for the oversupply in 2008 and 2009 is delayed to July 2013.
3. Open category COEs will be made up of smaller contributions from the other categories.
The next six-monthly quota will depend on the scrap rate up till June 2012 and it is not looking rosy with the May figure being flat.
Minister for Transport Lui Tuck Yew stated during Parliament on May 14 that a "Pay As You Bid" system to curb excessive bidding for COEs was not feasible. He mentioned that feedback gathered from industry members and academics at the 1999 review revealed that the PAYB method has several drawbacks but he did not elaborate on what were the drawbacks. He shifted the focus to PAYB method having less merit since the open bidding system for COEs was implemented in 2001. Open bidding means that the public are aware of the current COE bid prices so there is no incentive for bidders to put in bids higher than what they are prepared to pay for.
I completely disagree as I deduce that the reason for not implementing the PAYB method is the high cost of maintaing the bidding system that is able to cope with the anticipated high volume in bid price changes lodged near the 4pm closing time. I am sure that nobody wants to appear stupid in overpaying for the COE and thus, will not be overly aggressive on early bids. And LTA also does not want to face angry bidders (mostly dealers) who failed to change their bid price to secure the COEs.
Will the extra windfall from the additional premium (difference from the minimum winning bid) collected from the higher PAYB bidders pay for the system upgrade? It is very unlikely since most will become responsible (smart) bidders. Thus, it is almost certain that we will not even see a trial of PAYB method since it does not make economic sense to LTA (or the government) for paying more cost and reaping less revenue. Sigh ... I wonder if we will ever get a Transport Minister that will support the PAYB method ... probably NOT in my lifetime. A parting note for LTY ... I do not mind eating my words 8-)