Supply shrinkage will have a profound impact on buyers and sellers
By Christopher Tan 02 October 2009
After half a decade of high-revving boom, in which as many as 144,000 Certificates of Entitlement (COEs) were available per year, car buyers and sellers will now have to filter into the slow lane.
Last week’s mid-year revision of COE supply will pull this year’s total quota (April 2009 to March 2010) to below 100,000 for the first time since 2003.
For passenger cars, this year’s supply works out to 63,415 - 34.2 per cent fewer than last year’s. The figure includes open COEs, which can be used for any vehicle type but which end up mainly used for cars.
The contraction is not entirely unexpected. COE supply is determined largely by the number of vehicles taken off the road (either scrapped or exported). Partly because of the economic crunch, people are holding on to their cars for a bit longer than they usually do. Hence, a drop in deregistration numbers - and consequently, a drop in COE supply.
The supply shrinkage will have a profound impact on both buyers and sellers. Already, motor companies have started streamlining their operations by freezing hiring, and in some cases, making some positions redundant.
Sales commissions are also being reworked, with the net effect being a cut in what sales people take home.
Plans to redevelop showroom and workshop facilities - characterised by several recent mega-projects by brands such as Mercedes, BMW, Peugeot and Volkswagen - are now likely to be put on hold or modified.
Companies selling vans and trucks will be hit the hardest. Last week’s supply revision was the most drastic for commercial vehicles. The quota was slashed by almost a third to just 331 COEs per month - and soaring premiums will be the likely outcome.
As a result, light commercial vehicle sales could grind to a halt, as buyers might find it more economical to buy a budget station wagon instead.
Car buyers will have to brace themselves for heftier outlays as well. Prices have already risen by around $10,000 so far this year.
With car COE premiums expected to head towards $25,000 (from $15,000 to $20,000 now), anyone contemplating a 1.6-litre Japanese family car might soon have to part with at least $80,000. Twelve months ago, these cars could be had for under $60,000.
Hence, motor traders foresee some changes in buying behaviour. Low-end cars will lose their lustre, as the cost of the COE becomes increasingly disproportionate to the value of such cars. Ditto for off-peak cars.
As a result, buyers - especially those shopping for their first car - will veer increasingly towards used vehicles.
The used car market, which has been in the doldrums for nearly a decade, is now stirring into life. And the industry is reacting to the change.
Several major dealerships have started second-hand divisions. These include Honda agent Kah Motor, Audi agent Premium Automobiles, BMW agent Performance Motors, and Mercedes dealer Cycle & Carriage.
It is one obvious way to shore up earnings that are likely to plunge with the sizeable contraction of COE supply.
Industry observers, meanwhile, reckon the smaller numbers will not be the only thing driving up premiums. The other is the halving of the COE bidding deposit to $5,000, starting this month.
This will encourage more people to bid, as well as fuel speculative bidding for certificates which are transferable: namely the open and commercial vehicle certificates.
As supply is limited, and the deposit is not as prohibitive as before, traders who want to make a quick buck by reselling COEs they have secured will emerge from the woodwork.
The picture will only grow bleaker for buyers and sellers. The April 2010 to March 2011 quota is likely to be even smaller. Conservative estimates put the supply of car COEs at 10 per cent smaller than this year’s.
That, however, does not take into account a review of the COE allocation formula. The review is still under way, and the new formula could kick in as early as next year.
Indications are that the revised method will result in even fewer COEs.
The Land Transport Authority has already held meetings with motor traders, and thrown up a number of proposed changes in the formula.
These include how it determines the number of open COEs. Currently, 25 per cent of each of the car, motorcycle and commercial vehicle categories goes into making up the open category.
One proposal is for the contribution from motorcycle COEs to be halved and that from big buses to be doubled.
The end result would be fewer COEs overall, because there are far fewer big buses than there are motorcycles here.
In fact, COE numbers will continue to slide for the next three years or so. Going by the age profile of cars here, the next big wave of demand from owners with vehicles reaching 10 years of age will arrive some time from 2013.
Nevertheless, the market is unlikely to return to the fat years of 2004 to last year. After all, the vehicle population’s allowable annual growth rate was halved to 1.5 per cent this year. The Transport Ministry said this rate will apply for three years, after which, another review will be carried out.
If traffic congestion does not improve, the annual growth rate could well be brought down to zero.
2 comments:
Car market in for lean times
Supply shrinkage will have a profound impact on buyers and sellers
By Christopher Tan
02 October 2009
After half a decade of high-revving boom, in which as many as 144,000 Certificates of Entitlement (COEs) were available per year, car buyers and sellers will now have to filter into the slow lane.
Last week’s mid-year revision of COE supply will pull this year’s total quota (April 2009 to March 2010) to below 100,000 for the first time since 2003.
For passenger cars, this year’s supply works out to 63,415 - 34.2 per cent fewer than last year’s. The figure includes open COEs, which can be used for any vehicle type but which end up mainly used for cars.
The contraction is not entirely unexpected. COE supply is determined largely by the number of vehicles taken off the road (either scrapped or exported). Partly because of the economic crunch, people are holding on to their cars for a bit longer than they usually do. Hence, a drop in deregistration numbers - and consequently, a drop in COE supply.
The supply shrinkage will have a profound impact on both buyers and sellers. Already, motor companies have started streamlining their operations by freezing hiring, and in some cases, making some positions redundant.
Sales commissions are also being reworked, with the net effect being a cut in what sales people take home.
Plans to redevelop showroom and workshop facilities - characterised by several recent mega-projects by brands such as Mercedes, BMW, Peugeot and Volkswagen - are now likely to be put on hold or modified.
Companies selling vans and trucks will be hit the hardest. Last week’s supply revision was the most drastic for commercial vehicles. The quota was slashed by almost a third to just 331 COEs per month - and soaring premiums will be the likely outcome.
As a result, light commercial vehicle sales could grind to a halt, as buyers might find it more economical to buy a budget station wagon instead.
Car buyers will have to brace themselves for heftier outlays as well. Prices have already risen by around $10,000 so far this year.
With car COE premiums expected to head towards $25,000 (from $15,000 to $20,000 now), anyone contemplating a 1.6-litre Japanese family car might soon have to part with at least $80,000. Twelve months ago, these cars could be had for under $60,000.
Hence, motor traders foresee some changes in buying behaviour. Low-end cars will lose their lustre, as the cost of the COE becomes increasingly disproportionate to the value of such cars. Ditto for off-peak cars.
As a result, buyers - especially those shopping for their first car - will veer increasingly towards used vehicles.
The used car market, which has been in the doldrums for nearly a decade, is now stirring into life. And the industry is reacting to the change.
Several major dealerships have started second-hand divisions. These include Honda agent Kah Motor, Audi agent Premium Automobiles, BMW agent Performance Motors, and Mercedes dealer Cycle & Carriage.
It is one obvious way to shore up earnings that are likely to plunge with the sizeable contraction of COE supply.
Industry observers, meanwhile, reckon the smaller numbers will not be the only thing driving up premiums. The other is the halving of the COE bidding deposit to $5,000, starting this month.
This will encourage more people to bid, as well as fuel speculative bidding for certificates which are transferable: namely the open and commercial vehicle certificates.
As supply is limited, and the deposit is not as prohibitive as before, traders who want to make a quick buck by reselling COEs they have secured will emerge from the woodwork.
The picture will only grow bleaker for buyers and sellers. The April 2010 to March 2011 quota is likely to be even smaller. Conservative estimates put the supply of car COEs at 10 per cent smaller than this year’s.
That, however, does not take into account a review of the COE allocation formula. The review is still under way, and the new formula could kick in as early as next year.
Indications are that the revised method will result in even fewer COEs.
The Land Transport Authority has already held meetings with motor traders, and thrown up a number of proposed changes in the formula.
These include how it determines the number of open COEs. Currently, 25 per cent of each of the car, motorcycle and commercial vehicle categories goes into making up the open category.
One proposal is for the contribution from motorcycle COEs to be halved and that from big buses to be doubled.
The end result would be fewer COEs overall, because there are far fewer big buses than there are motorcycles here.
In fact, COE numbers will continue to slide for the next three years or so. Going by the age profile of cars here, the next big wave of demand from owners with vehicles reaching 10 years of age will arrive some time from 2013.
Nevertheless, the market is unlikely to return to the fat years of 2004 to last year. After all, the vehicle population’s allowable annual growth rate was halved to 1.5 per cent this year. The Transport Ministry said this rate will apply for three years, after which, another review will be carried out.
If traffic congestion does not improve, the annual growth rate could well be brought down to zero.
Post a Comment