By Samuel Ee
SINGAPORE - Instead of more Certificates of Entitlement or COEs from August, car buyers could face a further 26 per cent cut to an already tiny quota.
Government measures announced yesterday to relieve the COE supply crunch was good news to many prospective car buyers but the reality is that the slowing vehicle deregistration rate will further tighten the COE supply in the second half of the year.
The two measures will cut the vehicle growth to 1.0 per cent from August 2012 instead of 0.5 per cent and defer by a year the remaining adjustments to the previous oversupply of COEs in 2008/2009.
The Land Transport Authority (LTA) hopes that the moves will reduce the impact of a tight COE supply, which has caused COE premiums to skyrocket in recent months and become a source of concern for motorists.
But the slowing number of vehicle deregistrations, a key component in determining the COE quota, is likely to undo the government's efforts. The size of the next COE quota from August 2012 to January 2013 depends on the number of vehicles scrapped from January to June 2012.
Only the figures from January to April are available from the LTA for now but so far, they are looking grim, especially for COE Category A - cars under 1,600 cc.
Compared to the corresponding figure from the previous year, year-to-date Cat A monthly deregistrations are significantly lower. Extrapolating the May and June 2012 numbers from the first four months of this year, the scrap rate for the first half of 2012 could be only 54 per cent of H1 2011.
Of course, it could climb if Cat A deregistrations in May and June 2012 surge substantially, and there are many taxi deregistrations and unutilised COEs.
But in the worst-case scenario, each tender during the next quota period could see the number of Cat A COEs fall by 42 per cent to just 369 pieces (see table).
"Cat A deregistrations have dropped so much because not many owners are scrapping their cars," explained George Lee, general manager of Opel distributor Auto Germany and Chevrolet dealer Alpine Motor.
"Customers in this category are more price-sensitive, so they are holding on to their cars longer."
As for Cat B (cars above 1,600cc), no drastic drop in COEs for the next quota is likely as big car scrap rates have been relatively steady over the past 16 months. So the new COE quota for this group of big cars may even inch up 2 per cent.
Cat C - for commercial vehicles - and Cat D - for motorcycles - may also post increases, although Cat E - the Open category - will slump because the LTA has said it will shrink the contribution rate to this transferrable category.
Based on the estimated figures, the overall drop in the next half-year quota will be about 16 per cent. But for the three car COE categories - A, B and E - the deficit will be even greater.
Together, they will experience a 26 per cent plunge.
Despite the prospective cut, Mr Lee said many customers believe the new quota will release more COEs.
"They expect premiums to fall and are asking for lower new car prices," he said. "So we have to try and manage their expectations somehow."
This article was first published in The Business Times.