Motor Mouth: Fools rush in

In just two months, COEs for cars have risen by as much as 36 per cent, or $16,000.
In just two months, COEs for cars have risen by as much as 36 per cent, or $16,000.PHOTO: ST FILE

SINGAPORE - Older readers will remember a couple of Elvis Presley songs with the line "fools rush in". I can't help but think how apt that phrase is in the context of current certificate of entitlement (COE) prices.

In just two months, COEs for cars have risen by as much as 36 per cent, or $16,000.

The latest increase on Wednesday, which saw Open COE (secured almost exclusively for bigger cars) climbing by 19 per cent, was the biggest in more than 10 years.

We know COE prices have historically been determined largely by COE supply. And the supply has been and will go on shrinking in the near term, with the May to July quota having 13.7 per cent fewer COEs for bigger cars.

But the price spikes, as shown above, have been far sharper than the drop in supply.

So what is fuelling this mad rush for cars? There are a number of underlying reasons, including the growing wealth factor created by the booming stock and property markets.

The STI index, for instance, is now at its highest in over a year.

The inability to travel because of the Covid-19 pandemic has also resulted in consumers having more liquidity.

On the supply side, the availability of new models - especially in the premium segment - is also spurring buyers to flock to showrooms. They include the latest S-class limousine from Mercedes-Benz, the M3 and M4 from BMW, the first electric car from Lexus, as well as a slew of new and updated cars from Audi.

Because of the pandemic- induced three-month shutdown last year, motor firms are making up for lost time this year with a higher-than-usual number of launches.

Meanwhile, fewer motorists are extending their cars' COEs. This means more are in the market for new cars.

Tighter regulations have also persuaded private-hire operators to replace older cars with new ones. The private-hire fleet is significant, accounting for around 10 per cent of the entire car population.

Also, sellers and buyers have found ways to bypass car loan curbs, which were reinstated in 2013 to cool overheating COE prices.

As pertinent as they are, all these factors do not fully explain the unusually big jumps in COE prices in recent tenders.

In my view, the single most understated contributor is consumer gullibility.

People are naturally afraid of losing out and fear prices rising further. This explains why long queues are a recurring phenomenon and why rising property prices tend to fuel demand.

Most recently, car dealers have been telling potential buyers that new emission penalties kicking in from July will raise prices of many bigger and more powerful models.

With all the other demand-churning reasons in place, this fear of having to pay more soon triggered the recent rush for COEs.

Ironically, the rush has driven prices far higher than what the imminent emission penalties would.

This irony is clearly lost on consumers. Or it is clouded by another fear - that the shrinking COE supply will keep pushing prices up.

Alas, the predictable response to these fears will lay the foundation for a self-fulfilling prophecy. Because the more people rush in, the more likely premiums will soar.

I know motorists who have bought cars when COEs were hovering above $90,000. When I asked why, they had a common response: "The dealer said if I don't buy now, prices will go to $100,000."

All of them ended up with high depreciation assets because prices eventually plunged, and they had to settle for lower resale prices when the time came to replace their vehicles.

In short, they were dealt a double whammy.

Car dealers lose out too as the higher COE prices go, the more they have to subsidise to keep sales moving.

As one car owner recounted to me years later how much he lost buying a high-COE car, I nodded with feigned sympathy as the Elvis song played in my head.