Does a high COE price mean a higher car resale value?

Generally, when COE prices start climbing, used car dealers start bumping up the price of their used car listings on Sgcarmart. Naturally, car owners would also expect the value of their cars to spike.

However, this trend has not been true in the last couple of months.Used car prices have gone in the opposite direction while the COE has gone up.

We will use a couple of examples from data collected at Sgcarmart Quotz for Cat A and Cat B cars transacted in the past three months to illustrate this strange phenomenon. We'll even provide some possible theories and hypotheses to consider.

Cat A

Let's take a look at three common Asian car models.

• Honda Vezel Hybrid 1.5X Auto
• Honda Fit 1.3 GF CVT
• Hyundai Elantra AD 1.6 GLS AT (AMS)

The trend has shown that the car resale price has dipped while the COE price has increased. 

Cat B

The trend has shown that the car resale price has dipped while the COE price has increased. Asian cars aside, let's look at two Conti car models from Mercedes-Benz and BMW.

• Mercedes Benz A200 AMG Line Auto
• BMW X1 sDrive18I AT LED NAV

Notice a trend here?

Why is this happening?

Here at Sgcarmart, we see an average of about 7000 to 8000 cars listed for sale per month. But that number dropped in September, meaning that used car dealers are not snapping up used cars as quickly as they were before.

This tells us two things:

• Used car dealers are getting more selective about which cars they want to take over

Taking over a car they think will not yield a high turnover does not make economic sense, especially when these dealers buy these used cars at a relatively high cost. The longer a used car stays in its dealership, the more money they lose daily.

• There's a lot of uncertainty with the COE price

Previously (let's say two years ago), COE premiums were a lot lower than it is today. Cat B was lower than Cat A at some point if you recall. Used car dealers were happy to snap up a used car if you were looking to sell.

This continued even while COE was steadily picking up the pace to that $100k mark. Then Cat B shot past $100k, and s*** hit the fan.

What would happen if the used car dealership decided to mark up the price according to the rising COE price? Will buyers be able to stomach the higher used car prices? Probably not.

Other factors to consider

Some external factors might further contribute to a lower car resale price.

• The rising costs of petrol

Earlier in June 2022, petrol prices shot up, with 95-octane fuel hitting an all-time high of $3.26 per litre.

While that madness has tapered down (somewhat), people could still be hesitant to buy a new or used car because of the uncertainty surrounding petrol prices.

• Rising car loan interest rates

Car loan interest rates will rise to an average of 2.28 per cent.

"Interest rates for car loans echo the recent move by the US Federal Reserve to raise its federal fund's rate by half a percentage point – the largest increase in 22 years."

Gone were the days when you could get a loan at 1.88 per cent. While the difference might not seem significant off-hand (a mere 0.4 per cent difference), I assure you that stretched over a seven-year loan tenure, the difference will then be starkly noticeable and, not to mention, painful for most people's wallets.

Are you looking to sell your car?

When all these factors are considered, customer demand would appear to be dampened, which helps to explain why used car prices have not risen accordingly with COE premiums.

So, if your car is in the market and you're wondering why used car dealers or direct owners do not want to buy at your listed price, don't fret. It's not you. It's just the market in general.

Alternatively, you can always get the best price for your car at Quotz – where over 500+ car dealers will bid for your car at an unbeatable high offer!

ALSO READ: COE supply projected to shrink again come November, despite change of quota counting method

This article was first published in sgCarMart.