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Saturday, July 20, 2013

Fixing the COE system

The Tata Nano, now available in a new paint colour called "The Singapore COE"

As the saying goes, if it ain't broke, don't fix it.

Judging by the way Certificate of Entitlement (COE) prices have defied gravity even with the recently added weight of car-cooling measures, Singapore's unique car ownership scheme must be thoroughly broken?

And many solutions (with some being very creative) have been offered to fix the system, if only the 'gahment' would listen.  But are these real solutions?  Or would they prove to be duds like removing taxis from COE bidding exercise.  We take a closer look at the more popular ones below and offer a suggestion of our own.

1. Use engine power/OMV to determine COE categories, instead of engine capacity

This suggestion has a flawed assumption - rich people are pushing up the prices of the Category A as they are buying the low engine capacity, high power luxury cars.  The truth is, many well to do families don't buy luxury marques.  For every high flying banker/businessman picking up their flashy Porsche 911s, there are many more who think a Toyota Vios is the most practical car to have in Singapore, regardless of their wealth.  That is why the prices of Category A and Category B COEs historically do not vary much and generally move in tandem.  They reflect the interaction between general demand versus supply, and not the gradual influx of luxury marques into Category A.

2. Stricter car financing measures

Remove the marginal car buyers from the car market to reduce the demand for COEs.  With a lower demand, prices will fall and I will be able to buy my dream car!  Right? Wrong.  They only thing it does is to make us realise that we have just become the latest marginal car buyer.  That is why COE prices have rebounded post-cooling measure to over $70,000 after the initial wait-and-see attitude of rich car buyers waned.

3. Balloting system or any system that favours certain groups of people

If HDB can do it, so can LTA?  This is a fair system, as we should remove money from the equation and let the needy families with children/Singaporeans/Singaporeans who served NS/families with maids/salespeople/old people/pregnant people/people living near parents/people living not near parents/people living near faulty MRT lines (delete as appropriate) have a shot at car ownership?  Well, these are obviously all self-serving suggestions.  And this might even lead to a black market for COEs.  Think NDP tickets. 

The car ownership conundrum

So what could be the solution then, you might ask.  The way I see it, the root of the high COE prices is too much money chasing after too few COEs.  It is not going to be fixed, as long as the income inequality remains high, as long as the car population size needs to be contained, and as long as people continue to desire spanking new cars.

Unfortunately, there is nothing we can do about the first two.  However, on the bright side, we might be able to do something about the third problem. 

A fresh perspective on car ownership

Perhaps our attitudes on the lifespan of cars have been shaped by the ticking of the 10-year COE clock.  Cars approaching the 10 year mark are shunned by the majority of car buyers here.  Actually, most cars would be able to last more than 10 years, especially in Singapore where people service their cars regularly and generally under-use them.  If the government can come up with incentives to encourage people to buy the older, say 7-10 year old cars, I think it would help those who really need a set of wheels and spread out the demand.

This could come in the form of cheaper and shorter (say $6,000 for 3 years) COE extensions for people buying over the 7-10 year old cars.  The cheaper COE extension would lower the overall cost of ownership for these buyers.  Additionally, a salary cap could apply to prevent high income folks from entering this market.  This way, the mass market might have a financially viable way to finally own a car.

Perhaps it is not the COE system that needs to be fixed, but rather our attitudes on car ownership?


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