COE system tweaked to factor in engine power

Change moves luxury cars out of Category A into Category B to make quota system more equitable

FROM next February, Mercedes and BMW will exit entirely from a certificate of entitlement (COE) category originally intended for mass-market car buyers and sellers.

In a move to re-introduce a measure of equity into the 23-year-old quota system, Transport Minister Lui Tuck Yew said yesterday that cars belonging to Category A must not have more than 130bhp of engine power.

This new criterion will be applied on top of the existing one that caps engine displacement at 1,600cc. Cars with more than 130bhp or an engine exceeding 1,600cc will fall into Category B.

The Government will not introduce a multiple-car ownership surcharge, citing difficulty in implementing it effectively, and the fact that it penalises those from multi-generation households.

Yesterday's announcement arose from a four-month review of the system. The change in criteria will affect a selection of mostly turbocharged models that are almost exclusively European. These makes include Volvo, Volkswagen and Mini.

But they will also affect a few budget cars, such as Proton's Preve and Exora, and Suzuki Swift Sport - 1.6-litre cars now in Category A with more than 130bhp.

With the change, more than 90 per cent of cars remaining in Category A will have an open market value of less than $20,000.

Mr Lui said the change should better separate mass-market cars from luxury cars, but added that the Land Transport Authority (LTA) should re-examine the format regularly to ensure its relevance. "What we do know is that motor traders will also respond," the minister said. "They will bring in different models, they will look at the criteria that we have introduced and see how they can work around the system."

Asked if the change will lower Category A premiums, which ended at $77,304 - higher than Category B - at the latest tender exercise last week, Mr Lui said "it is very hard to predict exactly how premiums will move".

"My suggestion is that those who are really in no hurry to buy a car... you may wish to wait for a while to see what the response and the reaction is going to be."

Motor traders expect COE prices for Category A to stay firm or even rise, as the market clears the stock of affected models before the change takes effect in February.

But over the longer term, Motor Traders Association president Glenn Tan said the change "will lead to stabilisation".

"Cat A prices will fall and Cat B prices will rise," he said.

Mr Cheah Kim Teck, chief executive of Cycle & Carriage's automotive business, is not sure the social equity objective will be met. His firm sells Mercedes, among other brands.

"Mercedes and BMW are out... but the (Mercedes) A-class and (BMW) 1-series are mass-market cars in Europe," he said.

"Audi will have a field day," he added, pointing to several Audi models that remain in Category A.

Observers were disappointed that none of the other proposed changes to the system - such as having bidders pay the amount they bid and having a multiple-car ownership surcharge - was adopted.

Citing academics proficient in auction theories, the LTA said a pay-as-you-bid system will not lead to lower premiums. But National University of Singapore transport researcher Lee Der Horng said traditional auction theories do not apply to COE.

"A COE is not a desired good, but a means to a desired good," he said, adding that he believes prices will fall with pay-as-you-bid.

Motorist Lee Kok Meng said: "Given the limited number of COEs, if you want to spread car ownership around, you should have a surcharge for subsequent cars." The 56-year-old retiree acknowledged that it would be difficult to enforce such a surcharge, "but that should not be the reason for not adopting such a measure".

Additional reporting by Jermyn Chow