The COE System in Singapore


Most of all have probably been living in Singapore for the majority of our lives and have acclimatized to everything Singapore, the good and the bad.


The issue of exorbitant car prices in Singapore is probably something that we have accepted now but whenever I have guests from overseas who visit Singapore, they get shocked by the prices of cars here.


I remember that as recently as 2008 when I bought my own 1.5L new Mitsubishi Lancer EX, it "only" cost slightly under S$50,000. A quick search of Mitsubishi cars on SgCarmart shows that a basic entry model Mitsubishi 1.2L Space Star has a listed price of S$79,999.


An article by budgetdirect.com.sg quoted a 2019 Worldwide Cost of Living Survey carried out by the Economist Intelligence Unit (EIU) that Singapore "remains the most expensive place in the world to buy and run a car".


Here’s how the price of a car in Singapore stacks up compared to other countries:


Car prices are nearly 2.5 times cheaper in Malaysia compared to Singapore.


Pricey cities such as Tokyo and New York did not even make the top 10 in the annual list, beaten out by Paris, Zurich (joint second) Hong Kong (fourth) and Oslo (fifth).


Based on the same car, Singapore car prices in 2019 are up to 6 times more expensive than; Australia (US$18,365), up to 5.5 times more than China (US$20,725) and 5 times more expensive than America (US$21,845). Whilst prices in London for the same car work out at around US$23,00.


Certificate of Entitlement (COE) Prices


There are many factors that cause prices of cars to be so high in Singapore. The major factor would be COE prices.


As car owners and aspiring car owners, we observe the COE prices but do you really know how it works? Here are some things about COE you might not know.


HOW COE BIDDING WORKS

Car dealers basically make a guess about what COE prices will be, and set a price for a car/COE bundle.

So if you’re a dealer who needs to sell a car for $60,000 to cover his costs, and you think the relevant COE will cost $40,000, you end up with a price of $100,000.

What happens next is complicated, and a little scary.

A customer walks in and books the car for $100,000. Your job is to secure the COE for the customer by placing a bid at the next COE auction. These take place 24 times a year, usually on the first and third Mondays of every month.

Just to be clear, the Land Transport Authority (LTA) doesn’t set COE prices. It only fixes the number of COEs available, and lets the free market determine the price through an auction mechanism.

Bidding lasts three days and there’s no incentive for being an early bird, and it’s not like gladiatorial combat waged with wallets. Instead, bidding is done electronically, and the price is set at the lowest successful bid.

It’s worth noting that for the car categories, COEs are not transferable. So it’s not the case that car dealers can snap up all available COEs between them and hold customers to ransom. Instead, because they are non-transferable, COEs are only bid for after there is a confirmed customers for a car, and not before.

Back to your conundrum: How much to bid? Well, you could try a low bid, like $30,000, but then you might not win a COE and your customer would have to wait at least a fortnight for you to try again.

How about a high bid like $50,000? That’s almost certainly going to get you a COE, but… you only factored in a price of $40,000. Whose pocket does the extra money come out of? (Hint: It’s not the customer’s!)

THE TRUTH ABOUT COES

From the above, two things are clear. One, car dealers generally want COE prices to fall.

It’s easy to accuse dealers of bidding exorbitantly for COEs and passing the cost on to the customer, but that simply isn’t the case. An unexpected rise in COE prices eats into dealer margins — it’s like selling a sandwich and then watching the price of bread climb before you have to deliver that troublesome sub.

In fact, figures from the Land Transport Authority show that car dealers are generally conservative when it comes to COE bidding. In early April’s COE auctions, the bids in the car categories were fairly close to the final price — for the Category A COE, nearly 80 percent of the bids were less than 5 percent above the final price.

The data shows that motorcycle and commercial vehicle buyers (or their dealers) were more reckless or aggressive, placing far more bids at a level high above their relevant COE price.

The second truth about COEs? If you go car shopping after a COE crash, it’s probably too late — those “cheap” COEs were for buyers who bought their cars earlier. It’s unreasonable to expect car dealers to slash their prices after a big fall in COE prices, because after collecting your order they have to secure a fresh COE for you, for an unknown price.

That makes it hard to determine when the best time to buy a car is, but perhaps the takeaway here is that the COE game is a risky one for car dealers.

For your part, trying to time your purchase to perfection requires an ability to gaze into the future. That being so, perhaps the best time to buy a car is when you feel comfortable with current pricing, and able to afford a model that would suit your needs well.

In other words, focusing your efforts on finding the perfect car will serve you far better than trying to score the perfect COE price.

WHAT TO DO

Indeed, so far we’ve taken a close look at where your motoring dollar really goes, we’ve explored the key differences between buying a used car and new one (including how a shiny new car can actually be cheaper than a second-hand one), and we’ve examined the major aspects of affordability, from what you need to know about car loans in Singapore, to how much to budget for monthly expenditure.

All of that knowledge is vital to making the best possible car-buying decision, because there’s nothing worse than being seduced by a car that later turns out to be a financial calamity.

The joy of a new car purchase does fade eventually, but making a wise decision can help to make your relationship with a car a deep and rewarding one. It’s one thing to buy happy, but quite another to drive happy.

IF YOU OWN A CAR

If you own a car and want to make full use of it to earn some extra income, consider joining Bookvalet as an associate valet driver or recovery driver on Fridays and during the weekends.

We are looking for motivated individuals who possess a class 3 driving license with good driving skills to join our team. You need to have more than 3 years experience of regular on road driving. Prior experience handling different brands and makes of cars will be an advantage.

For more information, reach out to us directly at https://www.bookvalet.com.sg/bookvalet-drivers



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