YOU will have noticed that the roads are a lot more crowded of late. In fact, the number of vehicles has risen sharply in the last few years.
From 2005 to September this year, annual growth rates for passenger cars ranged from 5 to 8.9 per cent, while total vehicle growth rates ranged from 3.8 to 6.5 per cent. By contrast, from 1998 to 2004, the annual growth rates for cars were between -0.6 per cent and 3.1 per cent, while total vehicle growth rates ranged from -0.3 per cent to 2.3 per cent.
The recent pace of growth has resulted in the vehicle population expanding by nearly 160,000 in less than four years. That's 3.5 times the 46,300 added between 1998 and 2004. How did the sharp rise happen? After all, there is a quota system in place that is supposed to cap growth at a modest 3 per cent per year.
Quite simply, the system has not worked according to plan. Annual growth rates have been erratic, with actual expansion far exceeding the cap in recent years.
Traffic jam along the Braddell viaduct
The crux of the problem is the number of certificates of entitlement (COE) released each year to replace vehicles expected to be scrapped in that same year. In theory, the growth rate of the vehicle population is determined largely by this number and, to a smaller extent, the number of new COEs allowed for that particular year.
But that assumes the authorities are able to predict accurately how many vehicles are likely to be scrapped. This has proved difficult, especially in recent years.
"There are many exogenous factors that could affect the actual number of vehicle deregistrations," the Land Transport Authority (LTA) said in response to queries from The Straits Times. "It is difficult to take into account all these external influences in our projection."
What happened was that car owners scrapped their vehicles prematurely in the past decade. They did so because measures to curb COE speculation drove premiums down from the stratospheric levels of the mid-1990s. And, together with periodic tax cuts, this caused new car prices to keep sliding. All these prompted car owners to continue to deregister their cars sooner than generally expected.
This, in turn, caused an underprovision in many years. The make-up COEs - or COEs that should have been released but were not because of incorrect forecasts - were eventually released in subsequent years, and drove supply up. From 2004, car buyers had an annual COE supply averaging 100,000 - more than double the average quota in the 1990s.
Contributing to this rise was the introduction of Electronic Road Pricing (ERP). In 1998, when ERP was rolled out, 5,500 additional COEs were released, followed by another 5,000 in 2002 - fulfilling a promise by the Government that more people could own cars if usage was kept in check.
This drove COE prices down further, and continued to dampen car resale values. Hence people continued to scrap their cars well before the 10th year, when their COEs expire.
Then, two things happened that put a brake on this premature scrapping. In 2002, the formula for scrap rebate - a paper refund on the unused portion of vehicle taxes - was tweaked to make it less attractive to take your car off the road early.
And in 2003, the Monetary Authority of Singapore deregulated vehicle loans. That led many buyers to borrow to the hilt. Saddled with sizeable loans, these motorists could no longer afford to scrap their cars too soon. Doing so would result in outstanding debt that had to be paid back to the bank. Such car owners would be out of pocket in a big way. So scrapping slowed down.
The COE system, however, was again not quick enough to react to the change. The result? More COEs were added to the pool than was necessary to replace the number of vehicles being scrapped. Hence, the growth explosion of recent years.
Nevertheless, the LTA says the COE system is able "to ensure that vehicle growth over a longer period is within the prescribed rate". It says the compound annual growth rate or CAGR - a method that measures average annual rate - from 1999 to last year was 2.7 per cent.
But in reality, annual growth rates have been a roller-coaster ride - going from negative growth in 1998 and 2002 to double or more than the prescribed cap in 2006 and last year. Going forward, no clear solution seems to be at hand for a better matching of supply and demand.
But the Government is taking immediate steps to address the accelerated vehicle population growth. Transport Minister Raymond Lim announced early this year that the annual allowable vehicle growth rate will be halved to 1.5 per cent from next year.
But will that be enough, since the biggest determinant of COE supply is the number of vehicles expected to be scrapped?
And scrap forecasts have been off the mark. For instance, in this year's allotment, the LTA envisaged 7,650 vehicles would be scrapped a month. But so far, monthly deregistrations have averaged fewer than 6,500. Despite a mid-quota adjustment last month, there would still be around 6,900 "replacement COEs" a month up to next March.
The LTA will have to find a more accurate method of predicting the number of vehicles scrapped each year. Instead of adjusting the supply every six months, perhaps it can make quarterly adjustments.
Whatever the measure, one thing is for sure: Singapore's car ownership ratio, now at one for every seven residents, will dip with the cutback on allowable vehicle growth rate. This would especially be the case, given how the human population growth rate has sped up in the past two years.
This article was first published in The Straits Times on Oct 18, 2008.
