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By Samuel Ee
SINGAPORE - Some motor distributors expect the premium difference between COE categories A and B to narrow further very soon, although they doubt the small car premium will overtake those for big cars.
"More and more models are falling into the Cat A segment, so by next year, it should be narrower than $12,000," says the sales manager of a European luxury make. "Also, don't forget that quota cut for Cat A has been more severe than Cat B."
The number of Cat A certificates of entitlement - for cars below 1,600 cc - was cut by 36.6 per cent to 786 COEs per month for the half-year period from August 2012 to January 2013.
On the other hand, Cat B - for cars above 1,600 cc - increased 0.3 per cent to 701 COEs per month. Cat E - the open category whose premium currently tracks that for Cat B - dropped 21.4 per cent to 485 COEs monthly.
"When you add the number of Cat B and Open Cat COEs together, the total is now more than Cat A," says a dealer for mainly Cat A volume models. "So it's no wonder that the Cat A premium hit a record this year."
The Cat A premium reached an all-time high of $73,501 in early August.
Currently, it is at $68,000 while Cat B is $80,191.
This means the difference between the Cat A and Cat B COE premiums is now $12,000.
Part of the reason for its spike is the rising demand for models with downsized engines. More and more luxury and Continental makes seeking improved fuel efficiency and emissions have been fitting their cars with smaller 1.6-litre turbocharged engines that slot neatly into Cat A, such as the Mercedes-Benz C180 and B200, and various Volvo models.
The Volkswagen Passat with a 1.4 TSI unit was recently introduced, and next year, the Mercedes-Benz A200 will arrive, along with the much-anticipated 1.6 version of the BMW 3 Series.
But until a fortnight ago, the gap had been $20,000 or more this year, with the difference growing to almost $30,000 in early May when Cat B reached $92,050.
One distributor thinks that the smaller gap from last fortnight was an aberration caused by a low Cat B premium, rather than a high Cat A premium.
"Many traders had expensive Open Cat COEs in hand, so they didn't go in to bid for Cat B COEs during the last round," says the head of a multi-franchise dealership.
Pointing to the current Cat E or Open Cat premium of $87,999 as evidence, he says: "This means people are still expecting Cat B to b e c l o s e r t o t h e $85,000-plus level."
In fact, one premium manufacturer is seeing demand for Cat B cars slowly rising again.
"These prospective buyers had been holding back with a wait-and-see attitude," said the sales director.
"Once the premium fell, they decided to come back into the market."
He believes that ultimately, the Cat A/B gap will not close much more.
"If the difference is small, then it will be more attractive to buy a proper Cat B car with better performance than a Cat A car with a smaller engine," he says. "Then the gap will widen again. It is self-correcting.
In the end, it's all about demand and supply."
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