COE supply set to increase due to higher deregistrations in July

COE premiums rose across the board in the most recent bidding round

In the most recent 19 August COE bidding exercise, premiums for Cat A, for cars up to 1,600cc in engine capacity and with an output of no more than 130bhp, increased by $2,701 (8.2per cent) and ended at $35,710 this bidding round. Premiums are now at a 12-month high.

Premiums for Cat B, for larger cars with more than 130bhp or engine displacements larger than 1,600cc, took a jump this bidding round by $1,700 (4.6per cent) and ended at $38,802. Premiums for this round are now at the 65th percentile of the 12-month trailing average.

"The record high Cat A premium is due to the backlog created as a result of the circuit breaker, coupled with the shrinking quota pushing the price up. Short term wise, prices will remain stable and not increase significantly due to the weak economy," highlights Nicholas Wong, General Manager of Kah Motor.

COE supply projected to increase by 7per cent for Nov-2020 to Jan-2021 period

Based on statistical forecasting using latest data released by the LTA, and adjusting for the return of quota from the suspended April to June bidding exercises, the quota for the upcoming Nov-2020 to Jan-2021 period is expected to increase by 7per cent to 14,801 for passenger cars (excluding commercial vehicles and motorbikes), assuming that Aug and Sept deregistration numbers follow that of July's./

For Cat A, COE quota is projected to drop 1per cent from the monthly average of 1,967 to an average of 1,956. For Cat B, COE quota is projected to increase by 17per cent, from the monthly average of 1,729 to an average of 2,017. For Cat E, COE quota is projected to increase by 6per cent from a monthly average of 903 to an average of 961.

The projected increase in COE supply is due to the 22per cent spike in vehicle deregistration in July, compared to the past three months. This is most notable for Cat B, with deregistrations increasing 37per cent. This is the reason that the Cat B quota is expected to grow by 17per cent, contributing significantly to the overall COE supply increase.

The projected reduction of Cat A COE quota will likely put upward pressure on Cat A premiums, while the expansion of Cat B and Cat E quota will put some downward pressure on them.

New car buying interest remains healthy

Despite the rise in COE prices, there has been little decrease in showroom enquiries, based on SGCM's monitoring of sales enquiries to new car dealers. Compared to the past one month, sales enquiries decreased by just 0.9per cent. The persistent new car buying interest will thus place continued upward pressure on COE premiums across the board, even if COE supply increases.

Ron Lim, Head of Sales & Marketing, Tan Chong Motor Sales, says, "In the current economic situation, it's logical to expect consumers to be more prudent, and thus their preference for more economical options such as Cat A cars. On top of that, the availability of new models means that moving from Cat B to Cat A is no longer always viewed as a downgrade."

"Looking at the current backlog of more than a thousand each, for both Cat A and B, and the further drop in COE quota come October, it's difficult to anticipate a correction in COE prices any time soon. At best, COE premiums will hover around current level but more likely, they will continue to be under tremendous pressure to trend higher, albeit at a more moderate rate as resistance is mounting in terms of new order takings," he adds.

New car price adjustments mixed amongst dealers

After the latest COE bidding, there was a mixed response of price adjustments across a selected panel of new car dealerships monitored by sgCarMart.

50per cent of dealers increased their prices in tandem with the COE price increases. For example, Mazda and Volkswagen both increased their Cat A cars by $3,000 and Cat B cars by $2,000.

The rest of the dealers were mixed. Kia only increased by $1,000, while Mitsubishi kept its prices unchanged. Hyundai and Toyota increased prices for their Cat B cars by $5,000 and $4,000 respectively.

This article was first published in sgcarmart.