By Samuel Ee
Singapore - A major change involving taxis and the COE system could have far-reaching effects for car buyers. In a nutshell, it may take some heat off those in the market for small cars but spell bad news for those seeking bigger cars.
As taxis are removed from the small car quota, it will only shift the price pressure to the big-car segment, say some motor distributors.
From next month, taxi operators who want to expand their fleets no longer have to bid for a certificate of entitlement (COE) and need only pay the prevailing quota premium (PQP).
But this will not mean more COEs for new car buyers because each new additional cab will result in one fewer Open Category COE available in the subsequent six-monthly COE quota.
The Land Transport Authority announced that taxis will be taken out of the COE bidding process from August 2012.
Prior to this, an operator replacing a deregistered taxi with a new vehicle did not have to bid for a COE but merely paid for one based on the Prevailing Quota Premium (PQP) of Category A (for cars under 1,600cc).
But if the operator wanted to add to its fleet, it had to bid for a Cat A COE under the Vehicle Quota System (VQS).
Recent moves by taxi companies to increase fleet size have required them to enter the market to bid aggressively for Cat A COEs. In the process, the Cat A COE premium has risen strongly and combined with successive reductions in the quota caused by, among other things, falling vehicle deregistrations, it is now at a record $68,656.
Motor distributors and consumers have long been clamouring for taxis to be removed from Cat A and the government has apparently heard them. So now, irrespective of whether the new taxis are intended to replace deregistered taxis or to be added to the existing fleets, no COE bidding is required.
The LTA says allowing taxis to pay the Cat A PQP maintains a concession given to taxis for their public transport role.
But the COEs used for taxi fleet expansion will be clawed back from the following six-monthly Cat E quota. So if the taxi operators have added, say, 100 new cabs during the August 2012 to January 2013 quota period, then 100 Cat E or Open Category COEs will be extracted from the February to July 2013 quota period.
According to the LTA, this is more reflective of the role of taxis in the public transport system and it is more equitable to use the Cat E quota that is contributed by all vehicle types, rather than drawing solely from the Cat A quota. This also reflects the current situation in which taxi companies register a variety of vehicles as taxis, including both Cat A and Cat B models, as well as some minivan models.
To avoid abuse, there will be a cap on the number of new taxis that operators can register. The figure, to be announced by the LTA next week, will be based on taxi ridership growth. But after January 2014, this number of COEs will be linked to taxi operators being able to meet taxi availability standards.
One dealer believes the move should slow future Cat A premium increases because taxi companies will become "price takers, not price makers".
"They will now have to follow the premium as set by the car-buying market," he said.
But another dealer pointed out that since taxi companies will continue to have an impact on COE supply indirectly, it only means the pain has been transferred to big-car buyers. The Cat E premium currently tracks that of Cat B (for cars above 1,600 cc). "There will be fewer COEs for luxury car buyers as the reduction will affect big car COEs," he said. "Maybe they think the rich can take care of themselves but what is the point of all this if there is little or no relief for Cat A buyers?"
The dealer said he still expects Cat A premiums to rise "because the quota is so small". He pointed to the most recent COE bidding exercise when the all-time high was achieved. "None of the taxi companies took part in the last round," he said. "It proves there are just too few COEs to satisfy demand."
This article was first published in The Business Times.