Sunday, April 04, 2010

Modify the COE system

The COE system for allocating licences for new vehicles has been used for more than 20 years in Singapore. It is a crude system that produces the following negative impacts:

- it encourages speculation on the COE prices and lead to price escalation due to fear of further increases
- the motor dealers take advantage of the system to make speculative profits at the expense of consumers.

Is there a better system? I like to propose the following modification to smoothen price volatility, reduce speculation and allow consumers to bid directly:

- have COE bidding for six months (and not monthly)
- the car owner is allowed six months to buy a car (and the COE will start from the date of purchase)
- the car owner needs to pay a deposit of 10% to make a bid and the balance on receiving the COE
- an owner who sells a new car within one year has to pay a levy (to prevent speculation)

Tan Kin Lian


Anonymous said...

I think the most undesirable part of COE is that everyone pays the same "minimum of the successful bids" regardless of their bidding. It encourages irresponsible bidding resulted in wild fluctuation of the COE prices. I think "pay as you bid" would be a better system. The suggestion is not new but it fell into deaf ears.

Anonymous said...

I suggest the COE to be divided into 2 categories only, one cat for queue and wait; the other cat for biding. Those who are very rich and need a motor car urgently goes for bidding, for those who can affort to wait 3 to 6 months may join the queue. This should be a fare syatem for all Singaporean be it rich or poor.

Anonymous said...

Dear all
The key criteria is maximization of government revenues. Not to make life good or easy for car drivers.

Anyone here wants to calculate the monthly revenues from sale of COEs?

LWL said...

Most consumers will not be able to bid directly as it would require them to come up with the cost of COE on their own, in cash. As I understand, right now, you require to furnish $10K upfront to place a bid.

Unless the proposed modification allows for bidding of COE by only paying a fraction of the cost of the bid, eg 5% or even less 2% (given the prices of COE now).

The balance to be paid up when the car is purchased, and therefore can be financed through a loan from a bank/finance company at that point in time. The amount 5% or 2% paid would be forfeited if a car is not purchased within the stipulated expiry date. That would be the penalty for frivolous high bids.

Such an arrangement would therefore entail customers to secure some form of loan eligibility from a bank prior to bidding to ensure that they are able to borrow later to cover the cost of the car and its COE.

Only in this manner, would direct bidding by consumers be possible.

But this is of course relatively cumbersome and complicated for the customer as they have been used to the presently more simple way of doing things.

With respect to the suggestion that car owners that sell within one year be penalised, I find this unnecessary.

A car would depreciate significantly once it changes hand and the loss as a result would more than offset any real benefit to speculate on the price of COE increasing by purchasing a new car and keeping it for a year.

To prevent speculation, a high transfer fee should be set so that those that have obtained a COE from the bidding exercise will not be able to transfer their COE easily to a 3rd party.

A Singaporean said...

And then NUS uses the COE system for bidding of modules at the undergraduate level...!!! While it's fair to all undergrads (because everyone is subjected to the same system), it's complicated and produces a lot of stress at the beginning of each semester.

Tan Kin Lian said...

Reply to LWL

You have made a useful contribution to this discussion. I did not realise the obstacle faced by consumers in bidding directly, i.e. they have to fork out a big lump sum. This is why the market is almost restricted to the big car dealers.

I will modify my proposal to reflect this point.

Anonymous said...

I was looking to buy a car since Feb 10, never expected the price of COE to skyrocket like that.
Only in this country will car price fluctuate like that, the government ought to be responsible for such wildly fluctuating prices that left consumers like me at the mercy of this ridiculous system.

Lye Khuen Way said...

Agreed thah the obstacles of Direct biddinghave essentially meant that only Car Dealers are in the game.
S'pore current Roads/ Car parks may have already exceeded its maximium car-carrying capacity.
The authority need to have the moral courage to say so, if it is so. If not, publish studies to establish the numbers.
What next: stop issuing more COE's. Build up the Public Transport system/ efficiency, Road infrastruture. Meanwhile, study the recommended changes.

Anonymous said...

Instead of debating how to improve the COE, we have to ask ourselves and the government why do we need COE in the first place?

I think it is clear that COE has failed to achieve its intended purpose of traffic control, and there is no need to elaborate its failure, it is plain for all to see

The primitive method of picking up 3 other passengers to go into the restricted zone is more effective

The current COE bidding is already very complicated. It seems better to advocate abolishing the COE than to debate and argue how to improve the COE


money face said...

Ahhh! Jerome!..
The primary purpose of our very existence as an island nation is business and with it: profits!

You wont find it in our pledge or constitution, but it certainly is the
spirit from all the ministries..
just take a look on who is who thats sitting on the boards of Temasek, SIA, PUB, Banks, PSA, Jurong Island
.. business & profits first.. technocrats first.. worry about people skills later.. it is not profitable to be human.. in fact, it is a liability!!

Money! money! money! and more money!

SY TAN said...

Dear Mr Tan,

I saw your letter to the ST Forum today. I applaud you that you raised this issue for consumers like me. I was held captive by the COE system. The COE bidding discourages end users to bid due to the high upfront cash layout as deposit. Genuine bidders with limited cash will be left out. We are left at the mercy of the car companies who do not provide transparent cost structure. Very often, you will not get a good car price if you got for your own COE. LTA insists that COE is transparent but COE is obviously a tool for car company to hide profits. I do not have the history of when COE started, (how many people have? we buy cars at most 5 times in our life time?) e.g. why there is this 'Open Category' where car companies can hold them and trade later, exchanging hands ... There seems to be more happening than we, as consumers, know. This is not transparent and definitely unfair.

Tan Kin Lian said...

I personally prefer a system where the government decides on the price for the COE, rather than through the bidding process.

If there are more demand than supply, the COE can be allocated by ballot and the price can be adjusted for the next cycle.

Some people argue that it is difficult for the government to decide on the COE price. I disagree. Many decisions have to be made by judgement and can be adjusted based on actual experience. Things become bad, when they are left to the market, especially if the market can be manipulated (and most markets are! ).

SY TAN said...

Hi Mr Tan, I like your proposal of fixing the COE prices and for bidding of them. Although I am more inclined to allow (free) market forces to come into play in most situations, but in this case, i tend to agree with you. With a few big car companies and players who hold key to knowledge like number of bidders, in depth knowledge of our complex car systems (PARF, Scrap value, etc etc), we should reduce complications and manipulations to protect the consumers! Do you know what is CASE's position in this?

Anonymous said...

Rex comments on SY Tan's post,

:do you know what is CASE's position in this:

In my opinion, CASE doesnt handle POLICY issues. Case only do things on case by case basis!! You have a specific problem of being cheated, you go to them, they don't dabble with governement policies because,.uh.. they are part of governement ha ha ha.!!!

Case website has an interesting mantra "we hear, we inform, we educate, we protect". Great!

But it seems to me that Mr Tan Kin Lian is more so championing the cost of such mantra's... and he does it at zero cost on the internet everyday and handles more "cases" than CASE!


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