Vehicle buyers will have fewer certificates of entitlement (COEs) to bid for in the August-to-October quota period.
The rare contraction, coming on the back of a series of expansions, occurred as more car owners sought to extend the lifespan of their cars. This led to fewer deregistrations - the main driver of fresh COE quotas.
The Land Transport Authority said yesterday that there will be an average of 8,613 COEs per month for the next three-month period - down by 10.6 per cent from 9,634 in the current May-July period.
COEs for cars up to 1,600cc and 130bhp will see a 9.4 per cent dip in supply to 4,016 a month. COEs for cars above 1,600cc or 130bhp will post an 8.6 per cent shrinkage to 2,672 a month. The Open category will have 857 COEs a month, roughly 16.6 per cent fewer.
In the first quarter, about 20 per cent of car owners chose to extend the lifespan of their vehicles by revalidating their COEs. The percentage may have risen in the second quarter, leading to fewer certificates going back into the system.
Motor Traders Association vice- president Eric Chan said: "COE revalidations have affected the quota. There will be pressure on premiums."
But Mr Nicholas Wong, general manager of Honda agent Kah Motor, said: "There's nothing to be alarmed about. The full-year supply should still be 90,000 to 100,000."
Mr Neo Nam Heng, chairman of diversified motor group Prime, concurred. "If people don't panic, prices will stabilise."
Meanwhile, commercial vehicle owners will have 23.2 per cent fewer COEs per month, with the supply further suppressed by better response to the Early Turnover Scheme. In this scheme, owners of old, pollutive diesel vehicles are encouraged to scrap them for new vehicles at a concession. These owners effectively have their existing COEs revalidated or extended, so their COEs are not recycled.
The supply of motorcycle COEs will contract by 9.6 per cent to 718 a month.
Even as the motor industry was bracing itself for a drop in supply because the number of vehicles being scrapped had slowed down, some were taken by surprise.
Mr Ron Lim, general manager of Nissan agent Tan Chong Motor, said: "I expected a cut, but not this big a cut. I guess more people are revalidating their COEs."
Mr Neo of Prime noted that, even though supply is shrinking, there are other factors that will temper a rise in premiums. He said the economic slowdown, an expected rise in interest rates and the stronger Japanese yen will dampen bidding fervour.