Big-car COE supply to surpass that of small cars

Ratio likely to swing next year, in a first since system was started in 1990

From as early as next year, there will be more certificates of entitlement (COEs) for bigger and costlier cars than for smaller ones, according to projections based on Land Transport Authority (LTA) data.

This will reverse a distribution pattern that has been in place since the COE system was implemented in 1990.

Back then, the supply of "small car" COEs outstripped "big car" (above 1,600cc or 130bhp) certificates almost five to one.

But because buyers and sellers of bigger cars have always been able to outbid others for Open COEs - which can be used for any vehicle type but ends up mainly for bigger cars - their cohort has undergone accelerated growth over the years.

And since COE supply is determined by number of cars scrapped, a growing population of bigger cars translates to a rising supply of COEs for such cars.

From five to one in 1990, the ratio of "small car" COEs to "big car" certificates dwindled to 2.3 to one by 2000 and 1.4 to one by 2010. It is almost one to one today.

Based on LTA data, the ratio is likely to swing in favour of "big car" COEs some time next year. This is expected to keep COE premiums of mass-market cars like Toyotas and Hyundais high in relation to premiums for cars like BMWs and Jaguars.

Nanyang Business School adjunct associate professor Zafar Momin, a former automotive expert with the Boston Consulting Group, said this "does not support the whole 'equity' objective". He was referring to a recent attempt by the LTA to bar luxury brands like Mercedes-Benz and BMW from Category A COEs meant for smaller cars by introducing an engine power cap.

But almost as soon as the new cap kicked in in February, a slew of manufacturers - including Mercedes - introduced models with sub-130bhp engines.

Prof Momin said: "The cost differential between the two categories has also narrowed to a point where the difference is trivial.

"To enable 'equity', Cat A needs to be priced lower and have a much larger relative volume as originally conceived."

Dr Park Byung Joon, head of the urban transport management programme at SIM University, said, however, that it is still "too early to judge" how the prices or buying pattern will be affected.

"We are still going through an adjustment period after the massive issuance of COEs from 2003 to 2008," he said.

Motor traders are divided. Some expect the shrinking supply of "small car" COEs to almost certainly result in higher COE premiums for mass-market and budget cars. Others are not sure, saying much depends on whether the car loan restrictions will remain.

Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, said the curb on car loans is driving consumers who previously bought bigger cars to "downgrade". He said this will fuel demand for smaller cars, and in turn drive buyers in this category to bid for Open COEs. If this happens, the "small car" population should increase over time and, one day, COE distribution could revert to its original pattern.

On its part, the LTA has trimmed the supply of Open COEs, which was originally made up of contributions of 25 per cent from each of the other COE categories (including commercial vehicles and motorcycles).

This was reduced to 20 per cent in 2012 and 15 per cent last year. Observers expect it to shrink further in future.

But instead of piecemeal changes, Prof Momin said "a fundamental rethink and restructuring of the COE system" was necessary to ensure equity as well as more stable prices.

"The data, analytical tools and expertise are all easily available to policymakers to carry out the necessary rethink, if they wish to do so," he said.