COE Prices Surged; Highest in Years – How COE Relates To Car Rental Customers?

The Certificate of Entitlement (COE) prices, needed to buy and to register vehicles in Singapore, have skyrocketed since the last bidding round. This is an unforeseen event which has not been experienced by potential vehicle owners in the last couple of years. In continuation with our previous article about “COE – What Is It And Why Is It So Expensive?“, our article today will be focused on providing a summary of the changes in COE prices, as well as possible explanations to which illustrates the stark change in prices affecting the car purchasing industry, and how this phenomenon would affect car rental companies and its customers.

COE Prices (Feb 2021 – Apr 2021)

Deep Dive into the COE Price Increase

SUMMARY: 

1. COE prices have increased across the board for all categories (except for Motorcycles).
2. Cat A prices, S$49,640, has risen by 8.9% since the last round 2 weeks ago, has reached a 4-year high.
3. Prices for Cat B (for Cars above 1600cc and 97KW) is at S$61,190, and has risen by 17%, highest since September 2015.
4. Prices for Cat E (Open category), mostly used for bigger cars, is at S$62,100, and has reached its highest since July 2015.
5. Prices for Cat C (Goods Vehicle and Buses) at S$44,001, were not spared, as it saw its biggest increase of 21.8% from its previous price.
6. Even though prices for motorcycles (Cat D) have not seen an increase in this bidding round, it is still among the highest prices for the category since the inauguration of COE in 1990.

With such a stark jump in prices, it has caused a frenzy amongst potential car owners and car dealers alike. Here’s what probably caused the prices to surge in the past couple of months, resulting in such exorbitant prices in the car market.

Increased Demand 

INCREASED WEALTH 

The COVID-19 pandemic has also hit the different socio-economic classes differently, where the rich get richer, and the poor get poorer, which creates a K-shaped recovery. For the rich, the stock markets have been steadily recovering since its crash in February 2020, and have been reaching all-time record prices. For example, the NASDAQ, Dow Jones and the S&P 500 Indices have all rallied to all-time highs. Closer to home, the Straits Times Index (STI) has also seen its highest prices since a year ago. With these huge earnings, investors have greater capital and ability to spend on luxury goods, with one such purchase being that of cars.

Furthermore, since Singapore is ranked third among the top 10 countries with the fastest growing number of ultra high net worth individuals (UHNWI), and with a 10% increase over the pandemic, a growing high-net worth population has also contributed to the increase in wealth and in the demand for new cars in the market. Thus, with consumers having more accumulated wealth over the last few months, they are looking for places to spend.

Due to COVID-19 restrictions, many of us are not able to travel, perhaps the purchase of cars, a social class symbol statement, could have pushed the demand for new cars, and expedited the increase in COE prices towards the upward trajectory.

NEW CAR MODELS 

Another reason for the increase in demand for new cars could be due to the release of new car models in the market. Luxury cars companies like Mercedes and BMW have released new models in the market. Even in the electric vehicle realm, Lexus has also released a new electric car model, Lexus UX Electric, which has shown to increase the demand for cars in the market, causing a spike in COE bids.

Because the demand for luxury cars is still on the rise, the price of branded cars are relatively price inelastic. In addition to the rising COE prices, there was also an increase in new car prices, across car dealers. For example, Ford cars may see an increase in prices by up to 3%, BMW increasing in car prices by up to 2%, which is about S$4,000 increase in price per car. Meanwhile, Mercedes has shown to have increased their car prices for the third time in 13 months, with buyers having to pay an average of S$2000 increase per car. Despite the increase in car prices, it has not deterred car buyers, as the COE quota bids way exceeded that of the number of quotas provided.

IMPENDING SURCHARGE OF PETROL VEHICLES 

These are the changes to the VES Rebate/Surcharge structure :

(Photo Cred: NEA)

The Vehicle Emission Scheme (VES) has been enhanced with increased rebates and higher surcharges. With this change, from 1 January 2021, car buyers would enjoy combined savings of up to S$45,000 for a newly purchased fully electric car, and up to S$57,000 for a newly purchased fully electric taxi, narrowing the cost gap between electric vehicles and their petrol counterparts. Additionally, surcharges for vehicles have also been increased by S$5,000 for cars and S$7,500 for taxis. This could amount to a car in Band C1 having incurred a surcharge of S$15,000 instead of the previous amount at S$10,000; and a Band C2 car incurring a surcharge of S$25,000 instead of S$20,000. Hence, car buyers are rushing to get their bids in, in hopes that they can make their car purchases soon, to avoid paying extra surcharges.

Decreased COE Supply 

(Photo Credit:LTA).

With the vehicle growth rate being at 0% per annum for Cat A, B and D, while Cat C has been at 0.25% per annum till further review in 2021, a decrease in COE quota has cut the supply of new vehicles in the market.

Here is a quick summary of the findings from the table of COE quota:

1. Cat A has a quota of 4,973, lower than previous quarter’s 5,299.
2. Cat B’s will have a quota of 4,856, a drop from previous quarter’s 5,651.
3. COE quota from Cat E, has a quota of 1,522, a drop from previous quarter’s 1,776.
4. For May 2021 to July 2021, the COE quota has dropped to 16,010, with an average of 5,334 certificates rolled out per month, the lowest in more than six years. This is a drop from 17,511 available from February 2021 to April 2021, an average of 5,705 per month.

Hence, potential car buyers are afraid that for the next month with the smaller COE quota, they will miss out on the chance to buy, the buyers are being aggressive with their bids this round.

How does COE Prices and COE Quotas Affect Car Rental Customers? 

For one, car rental customers can circumvent around the cost of COE, VES and other vehicle policies that affect the price of a car purchase. Without paying for these additional costs, car rental customers are also able to obtain a car which serves their commuting needs. Although customers are unable to own a car, their ability to utilize the car to fit one’s own is not compromised. Rather than scrambling to obtain the COE bids and paying exorbitant amounts to own the vehicle, this responsibility is passed on to the car rental companies, while you pay a flat rental fee to enjoy the benefits a vehicle provides.

Be it a long-term car rental or a short-term car rental, BizLink Rent-A-Car would like to extend our support in helping you find the most suitable car rental package that best suits your specific needs. Speak to our friendly sales associates at 6285 6616 to get a quote or enquire today.

Resources: 

https://www.straitstimes.com/singapore/transport/coes-soar-ahead-of-supply-contraction

https://www.todayonline.com/singapore/coe-prices-shoot-april-21-bidding-exercise-not-seen-years-and-beyond-market-expectations

https://www.channelnewsasia.com/news/singapore/coe-quota-may-june-july-2021-lta-14627478

https://www.channelnewsasia.com/news/singapore/coe-prices-premiums-cars-motorcycles-highest-3-years-14573814?cid=h3_referral_inarticlelinks_24082018_cna

https://www.nea.gov.sg/media/news/news/index/increased-rebates-for-cleaner-vehicles-under-enhanced-vehicular-emissions-scheme