COE premiums reached new highs in the latest round of bidding in October, but what’s driving this relentless upward trend?

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SINGAPORE

In the second COE bidding exercise for October 2021, premiums in Category A, for ‘mainstream’ cars with engines less than 1.6-litres in capacity and output of less than 130hp, rose by a hefty S$5,708 to end at S$52,709, finally breaching past the 50 grand barrier after threatening to do so several times this year.

But the headline figures were in Categories B and E, which both broke past the 80k mark, continuing the relentless upward trend both categories have seen in recent months. Cat B, for cars with engines that make more than 130hp, or are above 1.6-litres in capacity, rose by an astonishing S$10,010 to end at S$80,210 in the latest bidding exercise.

Category E, which is open to all vehicles except motorbikes, but usually ends up being used for big cars, also saw a five figure increase, by S$12,244 to end the bidding at S$85,000, a figure not seen since 2013.

The main drivers for the sharp rise can probably be attributed to the announcement by the Land Transport Authority (LTA) that the COE quota for the next three months (Nov 2021 to Jan 2022) will be cut further, by an average of 24.3 percent across all categories. Cat A’s quota will see a reduction of 33.9 percent, while Cat B and E’s quota will be reduced by 23.9 percent and 26.4 percent respectively.

As is basic economics, smaller supplies will result in increased prices. But the situation is also not helped by the fact that demand, especially in Cat B (and by extension Cat E) has not really abated. The clamour has apparently been fuelled (not literally) by electric vehicle brand Tesla, which has been clocking up strong sales over the past couple of months.

Tesla officially sold 314 cars in September alone, putting it sixth in the top 10 rankings, and the American company has now sold over 500 cars since it started deliveries in July, becoming the best selling electric car brand in Singapore in just a matter of months.

While Tesla is an easy target to blame, the situation is also complicated by many manufacturers suffering from a shortage of semiconductor chips, a vital component in cars today with their myriad of electronics. Car factories around the world have been announcing production stoppages over the past few months, and that effect is now being felt right here in Singapore.

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A popular Japanese brand, for instance, has not had ready stock of one of its popular crossover models for months now, resulting in an ever-lengthening waiting list. Car buyers have also noted that their automotive purchases are facing weeks, or even months of delay as brands struggle to deliver orders.

For customers who can’t wait and need their cars urgently, they would be more willing to urge the dealer to bid higher to secure their COE first, in order to lock in their desired price before premiums rise even further. It results in a sort of Catch-22 situation, culminating in the situation we see today.

The chip shortage has also had a knock on effect on the used car market, and in many countries overseas second hand cars are now commanding near-unprecedented prices. It’s only a matter of time before this trend makes its way to Singapore, so perhaps now is a good time to consider going the second hand route if you’re looking to buy a car.

All of the above factors mean that we are unlikely to see COE premiums subside any time soon, and the CEO of a local dealership franchise even predicts that COEs will top 90 grand or beyond over the coming months. That’s not an unrealistic prospect, and car buyers here will just have to be prepared for that day when it comes.

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