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-)

Make a Profit from Driving?

Motoring in Singapore got featured on Bloomberg yesterday with the article "Singapore Family Sedan Matches Cost of a U S Home".  Here is an extract:

Confident Buyers

Job security has made people more willing to buy cars, helping drive prices higher, said Song Seng Wun, an economist at CIMB Research Pte in Singapore.

“There’s a certain degree of speculation,” Song said. “Due to the COE, you can make money by buying a car and selling it one year later. In most other countries, we’d say a car is a depreciating asset.”

Song said he takes trains and buses, and “whoever wants to drive and pay through the nose, go ahead.”

I find Song's comments amusing and clearly contradictory - he claimed that you can make money from buying and selling of cars and then he dismissed those driving next.

Ferrari smashed Taxi

This must be the most tragic local traffic accident in 2012 resulting in three death - the Ferrari driver, the taxi driver and the taxi passenger.  Two others were injured - the Ferrari passenger and a motorcyclist who was dismounted by the taxi from the force of the crash.

The investigation into the cause of the accident is still in progress.  It is strange that the Ferrari was so late in beating the red light.  There is a pedestrian crossing about 30 metres before the cross junction where the accident occurred; perhaps the Ferrari driver had mistakenly relied on the green light of the pedestrian crossing and missed the red one when going at such a fast speed.

Is the accident avoidable?  Let's wait for the official investigation result before making any speculation.  In the mean time, put on your seat belt and drive safely.

COE Scheme in the Spotlight

I read this article on The Straits Times published on 30 April 2012 which offered a good analysis into whether the quota system has effectively manage our vehicle population over the 22 years:

Time to Rethink COE System?

by Christopher Tan

IF THE purpose of the Certificate of Entitlement (COE) system was to slow the growth of Singapore's vehicle population, it hasn't been working all that well. At least, not when it comes to cars - the main target of the quota system.

The system, officially called the Vehicle Quota System, was put in place in May 1990 as the Government deemed the prevailing vehicle growth rate of 3.5 per cent unsustainable in the long term.

The system was to cap growth at 3 per cent per annum, to be in line with the pace of road network expansion and me-dian income growth of Singaporeans.

An analysis of growth trends 20 years before the system was introduced in 1990, and 20 years after it, shows the car population has, on average, been growing faster post-COE than pre-COE.

According to data from the Registry of Vehicles and the Land Transport Authority, the average growth rate was 3.5 per cent per annum from 1971 to 1990. It rose to 4 per cent from 1991 to 2010. The growth rate after COEs were introduced was 14 per cent faster than before.

Why? Here's one theory: Before the quota system, consumer behaviour was influenced more acutely by factors such as economic slowdowns, oil crises and changes in tariffs. But with a quota system in place, consumers become shielded from natural market forces. While the quota system put in place a growth ceiling, it also established a 'floor' that prevents the market from collapsing - even in the depths of recession.

An example of the latter was well demonstrated in 2004, when Singapore sank into a deep recession. Car sales grew 19.2per cent that year.

The year before, when the country was in the throes of the Sars epidemic, sales grew 29.1per cent.

But what would have happened if there had been no quota system in place? Would Singapore have become as gridlocked as cities like Jakarta, Manila and Bangkok?

Maybe. Then again, maybe not.

While growing income tends to fuel the desire to own cars, there comes a point when the pattern goes into reverse.

A paper written by United States transport researcher Joyce Dargay and economist Dermot Gately (Income's Effect On Car And Vehicle Ownership Worldwide: 1960-2015) asserts that car ownership grows slowly when income levels are low. When a country reaches 'middle-income' status, the ownership growth rate becomes twice as fast. And when income goes beyond a certain level, the car ownership growth rate actually reverses.

The global car market today confirms this. Car sales in developed markets such as America, Europe and Japan are slowing, while sales in China and India are in the fast lane.

Singapore's per capita gross domestic product ($63,000 last year) is among the highest in the world. So, even if its car ownership growth rate was relatively fast in the 1990s (assuming the COE system was not in place), the pattern could well have gone into reverse gear by the mid-noughties.

Today, when COE premiums are heading towards record levels, the quota system causes unintended ill-effects too. High inflation is one. Ironically, public transport fare adjustments are influenced greatly by the inflation rate.

The other major ill-effect is social discontent. Like all auctions, the COE system favours those who are most able to pay. When the supply of certificates is constricted (as it is now), COEs invariably end up mostly with wealthy consumers, who buy bigger and costlier cars.

Interestingly, this contrasts with a common criticism of the high ad valorem taxation regime preceding the quota system. When car registration taxes added up to more than 220 per cent of a vehicle's open-market value (OMV, or roughly its pre-tax cost) before 1990, well-heeled buyers complained that the system placed an inordinately high penalty on bigger, pricier cars.

Car taxes today amount to 120 per cent of OMV.

If there was an attempt to incorporate social equity into the quota system by segregating COEs according to car engine size, it is now negated by an increasing number of premium brands with small-engine models.

In the first quarter of this year, brands such as Mercedes-Benz, Volvo and Audi accounted for 45 per cent of sales in the up-to-1,600cc COE segment. Five years ago, they had a mere 0.3 per cent slice of the segment.

This only serves to widen the gap between the haves and the have-nots.

So, after 20 years, perhaps it is time we took a long hard look at the COE system, to examine its relevance and to see if it can be improved upon.

In doing so, it might be useful to look at how other cities without a quota system have coped - Hong Kong, for instance.

Hong Kong has 59 cars per 1,000 residents - half of Singapore's 117. Taipei has 250 cars per 1,000 residents, but the annual mileage of cars there is half that of those here. Ditto Tokyo.

New York is another example. The Big Apple is one of the wealthiest cities in the US, but its car ownership rate is among the lowest (230 per 1,000 residents).

These cities share a common denominator: a superior rail network and limited parking facilities. In the case of New York's Manhattan, 60 per cent of work trips are made by public transport. In Hong Kong, the figure is 90 per cent.

None of them has a quota system, or even high taxes on cars. They rely instead on letting the motorist bear the brunt of driving: jams and the frustration of not being able to find parking.

That, however, exerts a huge environmental cost. Singapore can do better. We have electronic road-pricing. All we need now is a policymaker brave enough to expand the gantry network and treble or quadruple ERP rates.

After all, it is ultimately congestion we are tackling. ERP, if priced right, will be more efficient at controlling congestion than a vehicle quota system.

And if a quota system is deemed still necessary, we should have one without the sharp supply fluctuations that send premiums to $90,000 in one year, and $5,000 in another.

--- end of article ---

While I agree that allowing motorists to bear the blunt of driving (jams and parking woes), our economy may have grown at a lower rate as a result of the inefficient transportation if the vehicle quota system was not implemented.  Would LTA have invested more to quickly grow the public transport infrastructure?  

I have experienced the ups and downs of the vehicle quota scheme as I have paid nothing (before the COE scheme), a high of $43K and a low of $2 for COEs.  It is increasingly challenging for a middle-class motorist to plan for car ownership and much worse for those aspire to buy their first vehicle.

One good suggestion was received from a reader and I concur with him on the opinion about the "boom and bust" cycle.  LTA should just smoothen out the supply of COEs over 10 years and make only minor changes from the actual deregistration to cap the vehicle population. Otherwise, those who are caught in a high COE quota premium will stay in the same cycle in 10 years' time.  Ouch!  That is a vicious cycle ... 

How to Fix the COE Scheme?

Published on 5 May 2012

While the certificate of entitlement (COE) scheme is fundamentally sound in controlling vehicle population, its inherent problem is the direct linkage between new COEs being issued and the deregistration of older vehicles.

Between 2004 and 2009, there were more than 90,000 COEs available for cars annually. The COE prices for small- and large-car categories dipped under $5,000 as recently as early 2009.

At the current monthly quota rate, just over 30,000 COEs will be available this year. Of course, with so few COEs available, prices will increase.

This leads to a 'boom and bust' cycle. When prices are high, fewer people will deregister their cars, thus fewer COEs are available. This continues until the vehicle population ages sufficiently for cars to be 'forced' off the road as their 10-year COEs expire.

Then, as more COEs are released, prices drop. This encourages drivers of newer cars to consider deregistration to buy new cars with lower COE prices, making yet more COEs available.

To suggest that the current high COE prices are a reflection of the healthy state of the economy, rather than supply and demand economics of the COE system, is inaccurate.

Simply put, prices are high because there are not many COEs available.

The only way to stop dramatic price changes is to ensure that the same number of COEs is released in every bidding exercise.

The current car population is just over 600,000. Without allowing for any growth in car ownership, this will mean 60,000 COEs being issued each year, over a 10-year period; that is, the same number being released every month.

The only factor influencing prices will then be market forces, not fluctuations in the number of COEs.

The only loophole in this proposal arises when owners choose to deregister their cars before the 10-year lifespan is up.

This can largely be stopped by not offering any COE rebates for deregistered cars, and managing traffic through other measures such as Electronic Road Pricing. People will then keep their cars longer.

Removing the 'boom and bust' cycle of COE pricing would lead to a much fairer system, while still controlling the total car population in land-scarce Singapore.

Nick FellowsManaging Director, Vertix Asia-Pacific

Coming Soon? $100K COE

Graphic source: ST701
Certificate of Entitlement Quota Premium for both the Open and Large cars categories has surpassed $90,000 in the latest bidding exercise earlier today.  These categories see the highest jump in premiums, rising $7,420 and $7,300 respectively to $92,010 and $91,000.


All other categories also see rises since news that COE supply will be further cut from August.  The Small cars category COE goes up $5,700 to $64,201.  Quota premiums for commercial vehicles rose $3,600 to $57,589 while the COE for motorcycles inched up $28 to $1,924.

Gee, $90,000 is a lot of money!  How long would it take for you to save $90,000?  With Singapore 2011 per capita GDP at $63,050 (source: Department of Statistics Singapore), the average Singaporean will find it hard to afford to pay for the COE of a small car at $64,201.  It is no surprise that there were three Luxury car makers in the top five newly registered cars in 2011 (source: One Motoring):

1. BMW - 4959
2. Mercedes Benz - 4166
3. Toyota - 3,562
4. Volkswagon - 3,204
5. Audi - 2,111

Will the other mass market makes exit from the Singapore market in future?  Only time will tell ...

Buckle Up to Stay Alive

I was sad to read about the accident that occurred on Saturday which a mother and her two sons were flung out of the car on the North South Highway after a holiday in Malacca (reported on STOMP).  The mother and her elder son died while the younger son was injured, saved by her mother's hug.

The deaths could have been prevented if all the back seat passengers had worn their safety belts.  It takes just a few seconds to buckle up.  The safety belt may be uncomfortable at times but it essentially keeps you intact when an accident occurs and the vehicle goes from 110km/h to an abrupt halt.  You do not want any human cannon balls fired from your car. As a responsible driver, you should ensure that all passengers wear their seat belts.

Always Buckle Up to Stay Alive!

D-I-Y Headlamp Bulb

I managed to change the H4 bulb for my left headlamp after doing some "research" ... I searched for "H4 bulb" on the local forum for my car make/model and found a kind soul "NSMan" has uploaded photos in sequence how to D-I-Y.

I bought the bulb from a nearby Esso petrol station, got a torch and follow the simple instructions.  The challenge is accessing the limited space to replace the bulb.  The instructions on removing the connector, rubber guard and pin holding the bulb helps tremendously.  There is no such instruction in the car manual.

So how many men are required to change a car's lightbulb?  Just one - either the mechanic or the owner with internet access 8-)

Make Roads Safe

Every 6 seconds someone is killed or seriously injured on the world’s roads. With 1.3 million road deaths each year this is a global epidemic comparable to Malaria or Tuberculosis. And like those killer diseases, road crashes prey on the young, the poor and the vulnerable. Yet by comparison to other global killers, road injury is utterly neglected.

Watch the video below and visit the official FIA site Make Roads Safe for more information about this decade-long campaign. You can help to support this cause by adding a web button link to the official site.

For my Twitter visitors, you can retweet RT Make Roads Safe - I pledge to slow down and be cautious in school zones.

Drivers at General Election 2011

Image source: www.ge.sg

The analogy using motoring was launched by Opposition MP Mr Low Thia Khiang in the first Workers' Party rally on April 28 (Source - The Straits Times):

WP chief Low Thia Khiang, speaking at the party's first rally in a field in Hougang Central, said: 'A co-driver is essential, especially when the road gets tougher to navigate. The co-driver is there to slap the driver when he drives off course or when he goes asleep.

'But, of course, if the driver is friendly and drives responsibly, we just keep talking to him to keep him awake.'

Describing the WP as someone without a driving licence, Mr Low said whether it could get a licence depends on the voters.

He cautioned that without co-drivers, Singaporeans would continue to be taken for a ride.

The analogy from Mr Low is very apt for describing the current political landscape and a series of rebuttal from the ruling party was spawned.

His motoring analogy has triggered my assessment of the state of local motoring for the last five years. I subscribed whole-heartedly to the Land Transport Masterplan (2008) that strives to meet the diverse needs of the people. I also personally felt that it is extremely difficult and complex to balance between the demand of the people and the available resources (supply) like road and transit networks, vehicle population control, etc.

The biggest issue that sticks in my mind is the COE Allocation Formula. Please read my previous post on Messed Up by Formula. The Transport Minister Mr. Raymond Lim seems to keep a low profile and I even had difficulty recalling his name. After the change to the Vehicle Quota System (VQS) Methodology in March 2010 (Source: LTA), his deputy, the Second Transport Minister Ms. Lim Hwee Hua dismissed lightly that the spike in certificate of entitlement (COE) premiums and car prices that week was not caused by changes to a formula to determine the number of replacement COEs (Source: AsiaOne). The flaw in the formula was acknowledged but I did not recall seeing any "apology". You should read how Ms. Lim disproved the correlation of the revised formula to the premium spike - I was simply amused.

The Motor Traders Association of Singapore (MTA) has written to Transport Minister Raymond Lim, in January 2011 to suggest the removal of taxis from the Category A COE quota, and doing away with Category E (open category) COEs (Source: CNA). MTA said taxi operators currently compete with the private car buyer for a COE as they are required to bid for a Category A COE to register their new taxis which add pressure on the Category A COE premiums and taxi operators are in a better position to bid more for COEs being business enterprises. The Transport Ministry said taxi companies made up only a small proportion of about 7% of the total successful bids for Category A COEs from July to December 2010. The ministry added that taxis are allowed to bid for COEs in Category A in recognition of the fact that they are part of the public transport spectrum, albeit at the high end. It said taxi companies replacing their fleet also need not necessarily bid for a new COE. They have the option of renewing expired COEs by paying the Prevailing Quota Premium (PQP).

If recommendations from MTA (made up of expert practitioners in the industry) cannot drive changes at the ministry, the voice of individual motorist is just a whisper in the wind. But on Polling day 7th May, my vote will be counted ...

Messed up by the Formula

Source - ST701

The Straits Times reported on April 16 that Second-hand car market in high gear - Tight COE supply sees used-car sales on track to hit 10-year high. POWERED by a meagre COE supply, used-car sales are continuing to rev up. In the first quarter of this year, 15,441 cars changed hands, a figure that is more than twice the 6,900 new cars sold, going by figures from the Land Transport Authority.

Sigh ... so how many of you are facing a situation which your current ride's Certificate Of Entitlement is expiring? The statistics indicate that more and more motorists have resorted to buying pre-owned cars. The critical question is whether the COE allocation formula can be tweaked for a balance between demand versus supply and what is the basis for the equilibrum point.

In LTA's current formulation for the quota system, the following are salient points
(a) The vehicle population growth rate has been set at 1.5% per annum for 3 years from 2009 to 2011.

Is this a reasonable target aligned to the population and GDP growth set by the government? Isn't it too low since the Electronic Road Pricing scheme is implemented to charge by usage rather than ownership?

(b) Taxi operators pay the prevailing quota premium (PQP) to replace their taxis within 6 months of de-registration of their taxis. If the taxi is not replaced by paying PQP, the de-registered taxis would be recycled as replacement COEs.

Why is this option not given to citizens but only to taxi operators? I would be glad to pay the PQP to register a new car and deregister my old one when the COE expiry approaches.

(c) COEs that have been successfully secured by bidders but were not utilised during their validity period were recycled.

There were about 250 certificates that were secured but had gone to "waste" as it made business sense for the dealers to forgo the low $5,000 deposit and bid for a lower priced COE in a downtrend.

(d) Category E receives 25% of the de-registrations from in each category.

We will eventually see an increase of luxury cars as most Category E COEs are used to register such cars. I am of the opinion that a single category based on quota premium per 1000 cc should serve the market better. If I register a 1,000 cc car, I pay the quota premium of eg. $10,000. For an expatriate getting a 4.8 l luxury sports car, he will have to pay $48,000.

(e) Adjustments for over-projections in Quota Years 2008 and 2009, as well as expired COEs from 2009 are spread over 22 bidding months from Apr 2010 to January 2012. An adjustment of -3,188 was factored in the 1st 4 months quota (Apr-Jul 2010), and the remaining -9,577 adjustments will be adjusted the next 12 months' quota (Feb 2011 - Jan 2012).

Thus, the tightening will continue until the start of 2012. For prospective upgraders, I would recommend holding out until then if your COE is not expiring.

In the mean time, we should all take good care of our rides and make them last as a new ride is an expensive option for now.

The Bidders must be Crazy

Chart source: http://www.st701.com/cars/coe

In complete contradiction to my last post that COE Quota Premium is flattening out, we have seen the meteoric rise of the COE Quota Premium past the $70K mark (for Category B and E) over the recent bidding exercises have put "COE" on the top of Yahoo's trending.

The Sunday Times 12 December published a good article "The COE Story" by Christopher Tan (article is reproduced here) that looks at the history of the Vehicle Quota System and traces the ups and downs of Category E (Open) quota premiums. However, the piece that caught my attention is the graphical illustration to the article (text by Feng Zeng Kun and graphics by Marlone Rubio).

Here are the key highlights:
April 1990 - Start of the Vehicle Quota Premium

October 1991 - Car (except Commercial and Open categories) and motorcycle COEs made non-transferable to stop speculators buying and selling them later for a profit.

January 1993 to November 1994 - Most experts believe the rise in COE prices across all categories is fuelled largely by speculation. Some speculators even use the non-transferable COEs to register vehicles and then resell them.

December 1994 to March 1995 - COE prices fall in anticipation of new government measures after quota premium has broken the $100K mark. Between January and March, the government rolls out a slew of measures to stop speculation. These include disallowing reselling of new vehicles within 3 months of purchase and imposing an additional fee for resale in the next 3 months.

January 1998 - Asian Financial Crisis hits Singapore and quota premium dropped from over $70K to the $30-40K range in early 1998.

April 1999 - COE supply formula revised to correct supply and demand time lag. Previously, the number of COEs for any year was determined by how many vehicles were deregistered the previous year. The new system estimates how many will be deregistered for the current year and issues that number of COEs. Revisions are made every six months to correct over- or under-projections.

July 2001 - An open bidding system is introduced for greater transparency. For the first time people can see the number of bids and the quantum of each bid. The COE quota each month are divided equally between the open and closed bidding systems.

April 2002 - The open bidding system completely replaces the closed bidding system.

January 2005 to March 2010 - Over-supply of COEs leads to faster-than-expected growth in vehicle population.

January 2010 - COE prices start to soar in anticipation of sharp supply cut and new quota formula.

March 2010 - Government announces new supply formula, reverting to basing COE quotas on past vehicle deregistrations. But this time, quotas are set every six months, instead of annually.

April 2010 - COE prices reach highest levels in 10 years with premium hitting $49K.

December 2010 - News of another quota shrinkage sparks panic bidding, sending premium to $76K.

After anti-speculation measures and limits to car loans are rolled out in the first quarter of 1995, COE prices headed south. Besides the blips in 1997, the downtrend lasted more than a decade.

So what is causing the COE quota premiums to soar in 2010? Here are the top three causes in my opinion:

1. COE supply formula - the reversion to basing on actual deregistration has sharply brought down supply and that causes a vicious cycle of existing vehicle owners delaying their replacement purchase.

2. Car population growth allowance - the government reduced the allowable annual growth rate for vehicle population to 1.5% from 3.0% in 2008. The subdued rate simply cannot support the influx of new buyers and aspiring upgraders. Quota premiums have already started to creep up in 2009.

3. Singapore population growth - The latest 2010 census counted the population at 5,076,700. With about 1.3 million foreigners working here, there should be many professionals who can afford luxury cars. Do you know that Mercedes and BMW are in the top three makes for new registrations? The data is available at onemotoring.com.sg.

It is extremely complex to balance usability, affordability and fairness in the Vehicle Quota System. We will definitely see new measures in 2011, especially with the General Election anticipated in the second quarter.

The option of changing the bidding system to pay what you bid is mentioned by the chairman of the GPC for Transport in a recent interview - I was wondering if he has gotten the idea from my recent blog post "Time for Pay as You Bid?". I feel that it should only apply to dealer's bid since individual bidder should not be penalized. It is also not possible to ban dealers from bidding as some buyers do not know how to bid by themselves (related post: Bid for your own COE)

Here's wishing you a Happy New Year and welcome 2011!

COE Quota Premium is Flattening Out

Chart source: http://www.st701.com/cars/coe

Category B COE Quota Premium is now fluctuating between the narrow band of $40-45K for the last seven bidding exercise. With the limited number of COEs at each bidding exercise, there are many motorists waiting on the sidelines to decide if they want to upgrade their rides. The phenomenon of such flat-line is associated with the lack of news and events to influence the market to rise or fall.

Is this good or bad news to potential buyers? Well, it is neither as there is really no news. I took a closer look at the Category A and Category E - they are consistent with Category B and do not give any clue to where COE quota premium is heading.

However, Category C is trending downwards which indicates that businesses are not rushing to replace ageing fleet, so business sentiment is somewhat cautious. Category D for motorcycles is trending upwards which indicates that the cheaper mode of transport is the only option for motor(cycl)ists priced out of the four-wheel markets.

What is my gut feel? It is unlikely to see a crash back to 2009 level of sub-$10K but I think the market will stay flat and may soften into 2011 as the world economies sputter under uncertain condition. For Category A buyers, you can consider it when quota premium is between $20-30K. For Category B buyers, you should be able to afford to go in even at current level.