The reduction, announced by the Land Transport Authority on Thursday, is smaller than the 10 to 30 per cent drop industry players were bracing themselves for, but could still be enough to nudge COE premiums up to the $20,000 mark.

'Average premium for cars might just cross $20,000 and stay around there this year,' said Mr Mark Choong, managing director of Toyota distributor Borneo Motors.

Car COE prices hovered around $16,000 in the current quota year, which ends this month. The last time premiums breached $20,000 was in 2005.

In total, there will be 115,946 COEs available in the coming quota year. Most vehicle categories will see a single-digit cut, although the Open category - which can be used for any vehicle type but ends up almost exclusively with car buyers - will see a 19.5 per cent reduction.

Those buying and selling bigger cars - above 1,600cc - like Mercedes-Benzes, BMWs and Audis will get the smallest cut: 2.3 per cent down.

Car prices are expected to rise in tandem with the COE supply shrinkage, although the strong Singapore dollar could prompt some motor traders to hold back a little.

Motorists who are mulling over when to change their cars need not hurry, observers reckon. This is because the value of their existing cars would probably rise if COE premiums climb. For those who are thinking of buying a car for the first time, now is as good a time as any.

Next year, COE supply will shrink further when the Government halves the annual allowable vehicle growth rate to 1.5 per cent.

Mr Cheah Kim Teck, chief executive (motors) of multi-brand Jardine Cycle & Carriage, said the reduction in COE supply was 'not as drastic as we thought'.

'It's a reasonable approach, to have a soft landing,' Mr Cheah said, adding that cuts could be 'more aggressive' in the future, when the public transport infrastructure improves.

The more bearish traders expect another cut in October, when the mid-quota year review kicks in.

They said the number of cars taken off the road this year will be far fewer than last year, and that the 115,946 COEs set aside would be an 'oversupply''.