Caution, commercial vehicle crunch ahead

The LTA says another 7,354 commercial vehicles will be scrapped in the second quarter of 2017 - nearly double 2015's quarterly figure.
The LTA says another 7,354 commercial vehicles will be scrapped in the second quarter of 2017 - nearly double 2015's quarterly figure.ST PHOTO: NIVASH JOYVIN

Record 17,060 due for scrapping in 1st quarter of next year; supply shortfall could hurt firms

More than 17,000 old commercial vehicles are due to be scrapped in the first quarter of next year - more than the record 15,000 ditched in the whole of last year.

Motor industry players fear this could cause a supply shortfall as it will be a challenge for manufacturers to cope with more than a year's volume in just three months.

If that happens, it could have a huge impact on businesses and, in turn, the economy.

According to the Land Transport Authority (LTA), 17,060 commercial vehicles are due for scrappage in the first three months of 2017.

Some 75 per cent are light goods vehicles such as vans and pickup trucks, while 18 per cent are heavy vehicles such as lorries and trailers. Six per cent are buses.

The deluge stems from a phenomenon 10 years ago, when a sustained crash in certificate of entitlement (COE) premiums led many fleet owners to renew their vehicle COEs. The crash was triggered by an earlier-than-expected introduction of the Euro 4 emission standard.

The industry will also be racing against the clock because the stringent Euro 6 emission standard will kick in from January 2018. As Euro 6 models tend to be costlier, buyers may also rush to buy Euro 5 vehicles before then.

As most vehicle suppliers could not meet the deadline, bids for COEs dwindled and the premium plunged to $1 for six consecutive tenders from December 2006 to March 2007.

As commercial vehicle COEs can be renewed for only a maximum of 10 years, all those renewed back then will have to be scrapped soon.

Mr Ron Lim, general manager of Nissan agent Tan Chong Motors, said: "A failure to support the replacement demand could affect the operations of businesses, which will be another blow to the economy.

"Being a major seller of light goods vehicles, Tan Chong will definitely work with the manufacturer to increase our production orders, but it is not going to be easy."

Mr Michael Wong, general manager of Isuzu agent Triangle Auto, said: "The problem is we don't know the exact composition of vehicles which will be scrapped. Without knowing what is needed, it is hard for us to plan."

The scrappage surge will continue. According to the LTA, an additional 7,354 commercial vehicles will be scrapped in the second quarter of 2017 - nearly double 2015's quarterly figure.

Mr Wong added that the industry will also be racing against the clock because the stringent Euro 6 emission standard will kick in from January 2018. As Euro 6 models tend to be costlier, buyers may also rush to buy Euro 5 vehicles before January 2018.

"It does not give us a lot of time," Mr Wong said.

Fleet owners, however, may not be aware of the impending crunch. Mr Wong said "no one" has called any major tenders yet.

Fleet owner Andy Goh, 47, who runs an electrical consultancy, hopes the potential vehicle supply shortfall next year will cause commercial vehicle COEs to tumble.

Currently, the COE premium for commercial vehicles is $49,801 - almost on a par with the $51,506 premium for cars up to 1,600cc.

"It is no longer logical for us to buy a light commercial vehicle now. Many of them cost more than $90,000," said Mr Goh.

"So, we recently bought a Toyota Wish (a seven-seater passenger car), which was going for $104,000. And we get a higher scrap value."

A version of this article appeared in the print edition of The Straits Times on September 23, 2016, with the headline 'Caution, commercial vehicle crunch ahead'. Print Edition | Subscribe