Monday, April 26, 2010

FarBird's take on spike of Singapore's COE prices in April 2010

For those whom don't yet already know of Singapore's method of issuing new car registrations, please have a read at Wikipedia's entry on COE.

Ok, now listen to my take on why the COE went up so sharply in early April 2010.

The COE price of the different classes of vehicles are determined by a quota bidding system.

This means that if there are 100 vehicles that got de-registered last month, there will be 100 new COEs up for grabs in the upcoming bid. If 200 potential car owners cast their bid for the COE, the price of the COE will be determined by the 100th decremental bid price casted.

If that was the case, why don't everyone cast a bid of $1 each?

The reason is simple, the COE bids are not just made by individuals. There are car salesmen making bids for potential car owners. And since there are so many car showrooms in Singapore, each of these showrooms have to sell a certain amount of cars to be sustainable.

COEs for these car showrooms are casted in bulk, since they represent a company bidding for a certain number of COEs on behalf of their clients, whom are purchasing several cars from them.

So companies in the car trade business can bid for a bulk quantity of COEs whereas an individual car buyer can only submit one bid if he or she is registering their own car.

So every fortnightly, a quota is announced and both car trade companies and individuals cast their bid for the COEs available. Sadly, there is a fixed quantity of COEs and not everyone gets it. So how then to secure COEs if a car trade company has committed to their clients a certain delivery date for their news shiny cars to be on the road?

Well, the answer is simple. Cast a higher bid to ensure that your bid(s) will be within the top range and thus having a higher chance of getting the COE.

But all car trade companies based their car selling prices on prevailing COE prices and perhaps add in some buffer amount for some flexibility in the event that COE goes higher than expected.

But to sell a mass produced Japanese car which cost less than S$20,000 make and bundle in COE prices with a high buffer for the sudden rise of COEs, sounds almost impossible to sell, when the selling price of the car is ballooned to S$70,000 or S$80,000 when it was S$50,000 just a few months ago.

This additional S$20,000 - S$30,000 seems a bit to hard for car buyers to swallow when they are considering a Japanese car initially for its economical price.

Now lets look at the luxury cars from Europe [ or more commonly known as continental cars ], I don't understand why they call it continental cars.

Is it because Europe is a continent and Asia isn't?

Anyway, to buy a S$185,000 BMW sedan, the fraction of the additional S$20,000 - S$30,000 becomes almost negligible when compared to the total sum of the car price and the monthly installment works out to be only S$100 - S$200 difference. Since if the luxury car installment is already S$1600 per month, I'm pretty sure that by the car owner standards that it being increased $1800 doesn't make much hoohah for him or her.

So why did Singapore have such a high COE in April?

The answer is simple, the demand for higher end and more expensive cars is increasing. It has increased to the point whereby "continental" cars trade companies need to bid excessively high for the COE so as to secure a high fraction of the quota, so that they can sell and deliver the "continental" car to you on time.

You don't believe? 
Take a driveby across Ubi or Leng Kee and see the amount of people in their showrooms, you'd be sure to count more customers in the luxury and continental brands as compared to the Japanese brands.

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