Industry veteran’s verdict: Rising supply likely to push down COE prices

Singapore and Singaporeans have had a complex relationship with the certificate of entitlement (COE) for more than three decades. Everyone has a view on it. Here are mine – having spent 24 years in the automotive industry. In a nutshell, I believe

the drop in COE prices

is likely to continue, even though others may tell you the opposite. Let me explain why.

I remember that tense afternoon meeting some time in 2012. I was then the managing director of a Singapore-based automotive dealer group and was caught in the middle of a gut-wrenching professional roller-coaster ride akin to those at Disneyland. Except it was worse. My ride lasted years and not mere minutes. You see, COE supply was at a record low at that time. For an automotive dealer, this meant a minuscule market size, high COE prices, plummeting sales volume and even retrenchment. To make matters worse, things had been completely opposite just a few years prior – supply at a record high, the prices low and businesses expanding.

Amid this unhappy thrill ride, I was invited to a meeting with the Land Transport Authority. Given the unfavourable situation at that time, they were keen to hear the grouses from the ground. And grouse I did. These peaks and troughs in COE supply are unhealthy for the country’s transport system, not just commercially but socially as well, I said.

I proposed that LTA policymakers take the forecasted abundant COE supply from future years and insert some of it into the here and now. Not only would this solve our immediate supply pain, it would also prevent future roller-coaster rides. In other words, my proposal would allow all of us to live happily ever after (at least with car ownership) in one fell swoop. As history shows, my suggestion was not taken and our COE supply went through another peak about four years later and trough afterwards.

Fast forward a decade and you can imagine my smugness when LTA

announced their “cut and fill” policy in May 2023.

For the uninitiated, the mechanisms of cut and fill are broadly similar to what I had proposed in that meeting – that is, bringing forward future COEs to increase current availability and smooth future supply. As the proverbial saying goes, “better late than never” and kudos to LTA for that. A year later, they made another announcement that an additional 20,000 COEs, on top of those from cut and fill, will be gradually released.

Simple supply and demand

Since these two announcements, 18,000 COEs for cars and 3,000 for motorcycles have been brought forward. With this increase in supply, COE prices have also fallen an average of 25 per cent across the board, for cars, motorcycles and commercial vehicles (see chart).

To prevent speculation, few details have been revealed on when the additional COEs will be released. But one key message has been made official – the authorities will be using these new policies to ensure a consistent increase in supply of passenger and commercial vehicle COEs until the peak year of 2026.

In my current role as a faculty with the Singapore University of Social Sciences, I recently worked with a colleague to utilise an XAI-Enabled Deep Learning Approach and 20 years of public data on COE bidding to analyse past COE price fluctuations. Unlike other auctions that display evidence of irrational consumer behaviour, we conclude that COE prices closely follow the classical law of supply and demand. This means that when supply increases, prices will almost certainly follow a downward trend. In other words, the 25 per cent drop in prices since 2023 is likely to continue.

Don’t listen to fearmongers

However, the COE price is one of Singapore’s favourite coffee shop conversations – often spiced up with a generous dose of conspiracy theories – and there are more armchair analysts with “expert” views than at a Premier League football match. I have sat through a lifetime worth of these coffee shop talks and feel that many of these analysts with contrasting views are frequently fearmongers, Mr Always-Right or procyclical thinkers with little statistical basis.

In a way, I was a target of such irrational COE fearmongering when I was a young executive overseeing sales for a Korean car brand. When COE prices were high, a number of panic prophets warned me that nobody would buy Korean cars as prices were too high. And when COE prices were low, the same doomsayers cautioned that nobody would buy Korean cars as competitors were now able to price themselves competitively. If I had listened to them, I would have slipped into a depression, left the business and gone into selling Matchbox cars that need no COE. Thankfully, I did not and that Korean brand has since grown from strength to strength.

There is another funny story of a colleague who, before every COE bidding exercise, would call half his friends and proclaim that prices would drop. He then called the remaining half to predict that prices would increase. Regardless of the final price, he would always be revered for his forecasting prowess, depending on which half he called afterwards.

My advice to all hoping to own a new car? Supply will continue to increase and the drop in COE prices is likely to continue – so listen less to the fearmongers and trust the science.

I am putting money where my mouth (or keyboard) is. I am replacing my ageing car and have requested a relatively unusual arrangement with the dealer – bid low as I believe there is a chance of catching it at a good price. Supply is increasing and I am happy to wait. I raised a few sceptical eyebrows when relating this approach to some of my friends. Needless to say, I cannot wait for the day when I successfully secure my COE and have that same smug look when telling them, “I told you so”. I just need to make sure that when that time comes, I am talking to the correct half of my friends.