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BOON FOR USED CARS: The resale value of second-hand cars is likely to go up with fewer COEs available this year, leading to higher premiums. -- ST PHOTO: AZIZ HUSSIN
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MOTOR traders are bracing themselves for a 10 per cent to 30 per cent shrinkage in new car sales, with fewer certificates of entitlement (COEs) to be made available this year.
This could turn out to be a boon to the used car market, as climbing COE prices - a likely result of smaller supply - squeeze out marginal buyers and push up the resale value of cars now on the road.
This, in a nutshell, is how industry players read the market following changes announced by the Transport Ministry to curb congestion and shift upfront costs of car ownership to usage.
The changes include a tighter allocation of COEs and cutting of car registration and road taxes.
Mr Raymond Tang, secretary of the Singapore Vehicle Traders Association, which largely represents used car traders, said the measures will have a positive impact on car owners and some car sellers 'in the long term'.
'No matter how low the supply of COEs or how high the premiums, people will still want to own cars,' he noted.
'If COE prices don't rise, motorists can't sell their cars. If they can't sell their cars, they can't buy another one.'
Mr Neo Nam Heng, who heads the Automotive Importers and Exporters Association, whose members are parallel importers, said the market is 'at a turning point'.
After nearly a decade of increasing COE supply, there will be fewer certificates in the next several years, he said, adding: 'The days of abundant COEs are over.'
Motor traders are familiar with the cycle. When the COE system started in 1990, the supply was modest. Just over 250,000 cars were then on the road, half of today's number.
The COE market boomed later that decade, as the demand for cars rose along with the humming economy. The piece of paper that gave one the right to buy a new car cost $110,000 in 1994.
Then, the Asian financial crisis hit hard towards the end of the decade. By then, the car population had grown by 50 per cent to 375,000. With a larger COE supply and a weaker economy, the premiums slid.
This prompted those who bought cars with high COEs to scrap their cars prematurely - well before the 10th year - to recoup residual taxes. All that premature scrapping triggered the release of even more replacement COEs, driving premiums lower and sending car sales into overdrive.
But premature scrapping began slowing down last year, as the car population hit a point where more than eight in 10 cars here were under four years old.
As Mr Neo put it: 'All those which can be scrapped have been scrapped.'
Many car owners are also saddled with big loans following the deregulation of the car loans market in 2003.
Mr Tang said he did not think people would be scrapping their cars at the drop of a hat now, because 'the loans they owe cost more than the cars they drive'.
With the slowdown in scrapping, fewer COEs will be available for release. And next year, the supply will shrink further when the cap on vehicle population growth is halved to 1.5 per cent.
Observers reckon the Government will moderate the correction to avoid sharp and sudden rises in COE prices.
Citigroup's head of research Lim Jit Soon told motoring magazine Torque: 'We're entering an inflationary period. The last thing you want is to add to it.'
Mr Barry Kan, general manager of Jaguar and Bentley agent Malayan Motors, said the pressure on COE premiums to go up might be mitigated by a few factors, among them the United States sub-prime crisis, the poor performance of the stock markets and the higher costs of using a car.
He added that while the top 15 per cent of bidders 'may not be bothered', the sheer size of the rest of the market will dictate premiums - and that segment of the market is soft.
Mr Kan said how successfully the Government can improve public transport will shape future car demand.
Long-term trends aside, motor traders expect the new tax cuts to sow confusion at the showrooms this weekend.
A Volvo salesman said: 'With the additional registration fee cut, customers will expect us to lower the price accordingly. But if there is a rush next month, COE prices will jump. What then?'
Another at Honda said: 'We collected over 200 orders last weekend...All those people will come in now and ask for a price reduction.'
christan@sph.com.sg
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