By Nisha Ramchandani
Certificate of Entitlement (COE) premiums ended higher across the board in the latest bidding exercise, with the COE premium for small cars shooting up more than expected to hit a brand new record of $73,501, an increase of $4,845 from the last round of bidding.
Meanwhile, COEs for big cars or cars above 1,600 cc (Category B) hit $94,502, up $4,001 from $90,501, while the COE for goods vehicles and buses came in at $57,001, edging up $1,196 from $55,805.
For Category D (motorcycles), the COE premium registered $2,081, rising $222 from $1,859. In Category E or the open category, premiums climbed $2,334 to $95,034, gaining three per cent.
This is the first round of bidding since the Land Transport Authority announced last month that taxis will be taken out of the COE bidding process from August this year, with taxi operators now only needing to pay the prevailing quota premium (PQP). The COE for taxis will be taken out of Cat E or the open category instead of Cat A. Previously, taxi companies looking to boost their fleet size would bid aggressively for Cat A COEs, often driving up the prices of COE premiums.
While car dealers say the rise in Cat A (cars 1,600cc and below) prices in the latest bidding exercise wasn't a total shock, the further increase from the high registered in the last round of bidding in July did come as a surprise.
This is "unchartered territory", said Ron Lim, general manager of Tan Chong Motor Sales, pointing to the steep cut in Cat A quotas. "The big question is how far (up) the premium will go for Cat A?"
Under the current six-month COE quota - from August 2012 to January 2013 - the number of available Cat A COEs is 36.6 per cent lower compared to the previous six-month period, February to July 2012.
Factors contributing to the steep rise in Cat A premiums at yesterday's close - which comes on the heels of a $9,235 rise to $68,656 in July's second bidding exercise - include the significant decline in quota numbers, the backlog of unsuccessful bids from the previous round as well as the three week long collection period as opposed to two weeks.
There is also a global trend of car manufacturers downsizing engine capacity in the interest of sustainability and fuel consumption so there are increasingly more small cars on the market, highlighted Zeno Kerschbaumer, managing director of Volkswagen Group Singapore.
"It will take some time for the market to adjust (to the cut in Cat A quotas)," said Dr Kerschbaumer, who expects COE premiums to continue rising, though possibly at a slower pace.
"Customers are telling us they will keep their cars until the COE expires," Dr Kerschbaumer added.
Although Cat A is typically used for mass market cars, Mr Lim notes that the dynamics may change as luxury car buyers downgrade to Cat A.
"(But) will we see a strong enough migration to sustain the premium?" he questioned.
And while taxi operators were excluded from this round of bidding, car dealers were not expecting this to have a significant impact on COE prices for Cat A since the quota cut was the main culprit in the price hike.
Still, if taxis had been included in the bidding process, premiums might have emerged even higher, Dr Kerschbaumer reckons.
This article was first published in The Business Times.