COE supply this year may be 50% of 2009’s

Down to 1999 levels – but COE premiums could soar, with much bigger car population

By SAMUEL EE
07 April 2010

This year’s new car registrations could plunge to levels not seen since 1999, but certificate of entitlement (COE) premiums would be way higher than what they were 11 years ago because of a bigger car population.

In 2009, the maximum COE quota size for passenger cars was 71,000 although only 68,862 cars were actually registered. This year, in a worst-case scenario, the number of car COEs could contract by half to just 34,762 – lower than 1999’s new car registrations of 36,183 units.

There will be one major difference from 1999 though: the COE premium. Back then, the peak for a COE that could be used for registering a passenger car was $53,000. But with today’s demand significantly higher than what it was in the late 1990s, conventional wisdom says COE premiums should surge far beyond that level.

One reason is that today’s car population is 50 per cent bigger than what it was 11 years ago, which implies 50 per cent more replacement demand. In 1999, the car population was about 383,000 units; at the end of 2009, it was nearly 580,000.

In the best-case scenario, this year’s total registrations for new cars could be as much as 44,000, or 36 per cent less than 2009’s total. Everything depends on the COE quota to be announced by the government for the August 2010 to January 2011 period.

This is because the number of COEs from January to July 2010 has been announced. In the first three months of this year, there were 4,827 COEs per month or a total of 14,481 from the three categories that could be used to register a passenger car – Category A (for small cars), Cat B (big cars) and Cat E (the open category).

For the April-July period, the relevant monthly figure is 3,214 or a total of 12,856. If the status quo for the remaining five months of 2010 is maintained – that is, at 3,214 COEs per month – motorists can look forward to the release of 16,070 certificates until the year-end. This would mean a 2010 total of 43,407, near 44,000.

But since future half-yearly quotas of COEs will now be determined largely by the actual number of vehicles deregistered in the preceding six-month period (that is, the quota beginning in August 2010 depends on January-February 2010’s scrappage), this figure could well be an optimistic one.

This is because deregistrations from January to February this year are falling, and if the trend continues, it means the amount of recycled COEs for the second half of 2010 could be much less than the 3,214 per month currently being released.

Assuming that used car dealers cut their monthly deregistrations by half because climbing COE premiums mean more attractive second-hand car prices, and using rough assumptions of COE allocation for the passenger car categories – plus other adjustments for over-projections in preceding years – the monthly quota from August onwards could be as low as 481 Cat A COEs, 491 Cat B, and 513 Cat E. This comes up to 1,485 COEs per month or a total of 7,425 for the last five months of 2010.

If this happens, the 2010 total will amount to just 34,762 – about half of the 68,862 new cars put on the road last year.

‘The sharp decline in deregistrations could set in as early as March,’ said one car distributor. The March 2010 deregistration statistics will be released by the Land Transport Authority (LTA) in the middle of this month.

The car distributor explained that used car dealers have already jacked up the prices of their second- hand cars in line with the upward-moving COE premiums.

‘This means they have stopped deregistering their stock and are hoping to get better prices on the resale market,’ he said.

He explained that the dealers’ inventory consists mainly of 2004 and older vehicles – cars with higher paper value that would otherwise have been scrapped and recycled into new COEs.

‘Cars registered in 2005 and later have lower paper value. They are unlikely to be scrapped anyway since they still have five more years left,’ he added. ‘It all points to a declining deregistration rate.’

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