THE new measures to contain vehicle growth and improve public transport are likely to weed out the marginal car owners, force others to keep their cars longer, and eventually stabilise the COE quota - and hence the car population - in two to three years' time.

Last week, the government announced sweeping measures to control the vehicle population by limiting the growth of new cars to 1.5 per cent annually from the current 3 per cent, and raise usage costs such as ERP or electronic road pricing.

Most in the motor industry believe the first to be impacted by these moves will be the marginal car owners.

'When the COE quota is reduced, premiums will surely go up,' says Vincent Ng, product manager of authorised Honda distributor Kah Motor. He says that the general rise in COE premiums will offset the 10 per cent cut in ARF or additional registration fee - a registration tax - so new cars will not cost less in future.

'With more expensive cars, the marginal owners will be the first to be squeezed out of the market,' he adds. 'All the measures will add up to a lot of money for them and they may have to turn to public transport.'

There is no data on the number of such marginal or first-time car owners but a senior executive of a popular Japanese dealership estimated that they accounted for more than a quarter of last year's buyers of some 106,000 new cars.

A more objective indicator is the steady growth in the passenger car population over the past three years - 9.0 per cent in 2007, 7.8 per cent in 2006 and about 5.1 per cent in 2005.

But if cars do become more expensive, it may not be a bad thing, says Alvyn Ang, general manager of Cycle & Carriage Automotive, which distributes Mercedes-Benz, Mitsubishi, Kia and Citroen.

'If the COE quota is cut by 10 to 15 per cent over the next three years, car prices will go up, which is not too bad a situation because the last few years have seen the entry of a lot of low-cost cars like those from China,' he says.

The bumper crop of COEs in recent years had resulted in the increased affordability of a new car but most of the owners of these cheaper cars are now in 'negative equity', explains Mr Ang, a situation where these over-financed owners owe the bank more than what their vehicles are worth.

'Cheaper cars caused the problem of negative equity. The cut in COE quota will increase car prices but solve this problem because used car prices will go up,' he says.

A less affordable new car will make used cars more attractive, he reasons, thus significantly reducing the scrap rate and stemming the export of cars.

'It will become a stable car market eventually because it will be consistent from year to year,' says Mark Choong, managing director of authorised Toyota and Lexus distributor Borneo Motors Singapore. 'It will be a replacement market.'

He adds: 'Those who had entered the market because of the low COE premiums will drop off because quota growth will be capped at a much lower rate, so the fluctuation in the number of COEs available will be minimal.'

As for the growth in car population, Kah Motor's Mr Ng expects it to fall steadily over the next two to three years and settle at a level where new, less wealthy buyers will be largely prevented from entering the market because of substantially higher ERP and fuel costs.

At the same time, existing owners who can afford these usage cost increases will replace their cars after six to seven years - up from the current four to five years and much higher than the three-year replacement cycle of the late 1990s and early 2000s.

Borneo's Mr Choong also holds the same view.

'If the number of cars is going to be limited, people will just maximise the use of the vehicle over its useful life,' he says. 'Based on previous trends, they will go back to keeping it for seven to eight years.'

Mr Choong also believes that when that happens, cheaper cars will lose their lustre and the trend will be towards the higher end of the market.

'With the reduced quota, competition will be strong and thus in favour of higher-end models for those buyers who are more willing to bid for COEs,' he says.

'Government policy will result in a new trend where people will keep their cars longer and public transport alternatives will be so good that those who don't need a car won't want one because it will be so expensive to use it,' says Mr Ng. 'When that happens, there will be zero growth in the car population.'