COME February, cars qualifying for Category A - long the staple of car buyers and where the bulk of car certificates of entitlement (COEs) resides - must not just have engines of less than 1,600cc in displacement.
They must also not have more than 130bhp in engine power.
The immediate impact of this re-categorisation exercise will be a COE premium spiral, as sellers rush to clear existing stocks of vehicles that will be affected.
And the change is likely to immediately drive up premiums not only in Category A, but also in the other categories. There may be a rush for Category B certificates in the next few months, as buyers become worried that Category B will become more crowded after February with a deluge of models moving over from Category A.
The premium for Open Category, which can technically be used for any vehicle type but in reality is used mainly for bigger cars, may also rise for the same reason.
As car COE premiums surge, there may in turn be some migration from the car categories to commercial vehicles, which are not governed by loan restrictions announced seven months ago.
The higher the Category A prices go, the harder it will be for buyers to stomach the loan curbs. Hence, the alternative of driving a van or truck will become more attractive (as seen in the early 2000s).
Any migration to commercial vehicle COEs, no matter how small, will be bad for business. Already, small enterprises are reeling from record premium after record premium in the commercial category.
When the dust eventually settles in the next quota year beginning in February, Category A COE prices should, however, return to saner levels. But it may not necessarily be solely because of the re-categorisation exercise.
Category A prices may well fall because the supply of COEs - which has been shrinking annually since 2007 - will start growing from next year. Early projections are for a supply expansion of 20-30 per cent for car COEs.
With that prospect looming, car buyers and sellers should rightfully temper their bids in the next nine tenders before February.
But history has shown that COE bidders do not have much propensity for restraint.
To complicate things further, this supply expansion may not be as significant as expected. The Government has said it may flatten the feast-and-famine COE supply pattern, and Transport Minister Lui Tuck Yew has hinted that he favours "saving" some certificates due in the 2015-2017 boom period for the "dry" period between 2019 and 2022.
So, until the exact method and measure are announced, there will be some uncertainty. And buyers tend to put their bets on any semblance of short-term certainty.
Motor traders will, no doubt, take full advantage of the dislike of uncertainty to sell as many cars as they can in the current year.
In the end, however, what matters to the Government is how successful this COE reclassification exercise will be. That, you would think, will be measured by how much "cheaper" Category A premiums become in relation to Category B prices. Ideally, Category A premiums should drop from the current levels. But with the Singapore buyer's traditional dislike of uncertainty, that gap may well widen as a result of an increase in Category B prices.
There are other side effects of the policy that are worth flagging.
The engine output criterion will trigger a change in the model line-up and cars with non-turbo engines could proliferate. Luxury and premium brands may introduce more diesel models that typically have low horsepower but high torque levels. Motorists could buy such low-powered models, and simply tune them up with a few keystrokes of a computer.
In another scenario, Singapore could end up with a population of less efficient cars. For instance, the COE change could tip buyers towards a 1.6-litre 122bhp Japanese sedan producing 164g/km of carbon dioxide, versus a German turbocharged equivalent with 138g/km of carbon dioxide.
But if this means the well-off do not compete with those of lesser means, the gain may be worth the pain.
This story was first published in The Straits Times on Sept 10, 2013
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