Tan Kin Lian's Blog: Time to review COE system?

Monday, April 05, 2010

Time to review COE system?

Published in Straits Times on 5 April 2010

The current system of bidding for Certificates of Entitlement has been operating for more than twenty years. When it was first introduced, it was envisaged that the end buyers would be bidding for the certificates.

Over the years, the bidding for these certificates appear to be dominated by the motor dealers who make a large profit on the trading of these certificates, adding to the total cost of ownership of a vehicle. The bidding system also encourages speculation and price volatility due to greed and fear.

One obstacle for the end buyer to bid directly is the high price of the certificate and the lack of financing for this item.

I wish to suggest the following modifications to the system reduce the speculative activity:

- Allow the successful bidder up to of six months to find a suitable vehicle
- Require the successful bidder to pay only 10% at the time of bidding and the remaining 90% on purchase of the vehicle
- Change the bidding cycle to three months (instead of the current one month).

The proposed changes will create a fairer and more transparent market for the certificate of entitlements and remove the unhealthy speculation.

Tan Kin Lian

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.

S Y Tan

25 comments:

Tan Kin Lian said...: Some people think that the changes that I propose may encourage the end buyers to speculate and bid for the COE, even if they are not sure about the need for a car. Do you think that this is likely to be the case?; April 05, 2010 2:45 PM
jamesneo said...: I think that unlike property, there will be little speculation using your recommendations. At most some "kiasu" person might just bid for it if he thinks he want to buy a car but i think it will not be a majority.

But to eliminate speculation totally we can make it illegal to resell their COE to another party before they bought the car and to enforce that each person can only bid for one COE at a time.(I do not own a car so i am not sure if this has been implemented); April 05, 2010 3:03 PM
Tan Kin Lian said...: It should be fair that the COE is not transferable and that a levy can be charged on the sale of new car during the first 12 months. This will help to minimise speculation.; April 05, 2010 3:29 PM
hang lian said...: Hi Mr. Tan,

Should a provision be made for people who realise within the first 12 months that they can't actually afford a car and have to sell it? Eg.a true case of financial hardship.; April 05, 2010 4:54 PM
Tan Kin Lian said...: reply to hang lian
they can give up their COE and lose the 10% deposit
but they should think carefully before they bid
it is like making an investment with the risk of a loss; April 05, 2010 4:58 PM
Anonymous said...: Singapore has limited space for road expansion.Just look around your areas/estates,almost most current available space left are almost filled to their limits,whether it is PIE,AYE,BKE,and all the Es.
My opinion is,COE will never and can never be cheap from now onwards.If you base on the current population and with the on-going immigrants,demand for cars will keep rising.Anyone who can afford will bid for it eventually whether it is for works or family leisures.
Moreover,this is another easy way of chunning out big monies for our government to spend on social health,education and public housing etc.
Any ordinary folk in the street will know that owning a car in Singapore is a luxury.
To me,COE policy will stay for many more decades.
sigh

Taxi Driver; April 05, 2010 5:02 PM
Anonymous said...: Mr Tan,
I read it over ST. I think no car dealer will sell CAR without COE. My grave worry is that the car dealer makes more money out of the COE than the car?

Thank you for having the gut to speak out for Singaporeans! You are the true son of Singapore. From Cashew Nut.; April 05, 2010 5:50 PM
Anonymous said...: COE is a revenue generating machine, imagine, 1 car COE cost $20,000 then 1000 cars is $20 millions in half a month changed hand and add into Govt piggy bank. I doubt LTA or Govt is interested to do anything. We can complain all we want but nothing will be done. The first sign of change is usually announce by a Minister so that credit will be given to him for initiating. Just like housing, nothing will be done. Look at foreign workers/talent, the first sign of change is when PM Lee mention it. Maybe is the nearing of the election and somehow, I felt it was half hearted. Maybe such announcement affect personal salary that's why half hearted.....; April 05, 2010 6:48 PM
Anonymous said...: Fact is, the main benefactor of high COE prices is the PAP government. And speculation help boost prices during so-called better times. This is why Mr Tan I am quite certain (99.9%) your suggestion will not be taken up by this government. It is not that I am cynical, but the truth hurts.; April 05, 2010 7:32 PM
Anonymous said...: When the car COE was implemented it had many categories. One of the reasons was to make it more affordable for the small car buyers. However the system did not work well due to changing/unexpected demand and supply. There were many instances where the COE for small car were actually higher than that of the bigger cars. I think instead of dividing the total number of COE into categories, perhaps we can consider doing away with it and just have one big pool of COE's. The bedding can be based on small car as a base and multiple it by a predetermined factor if buyer wish to buy a bigger car e.g. 2000cc-3000cc can have a factor of say 1.5 and >3000cc have a factor of 2. Another way could be simply divide the capacity (cc) by 1000cc and fine tune it from there.; April 05, 2010 9:10 PM
Tan Kin Lian said...: I agree with the suggestion by 9:10 pm to have one category of COE and to have a fixed ratio to determine the adjustment for big and small cars. It helps to reduce some of the ridiculous pricing produced by the bidding system.; April 05, 2010 9:48 PM
Tan Kin Lian said...: Reply to Taxi Driver

I agree that COE will remain high for the reasons that you have stated. My proposal is to avoid the volatility, speculation, fear and greed and to have prices that reflect true supply and demand.; April 05, 2010 9:50 PM
Anonymous said...: One of the reason for the ridiculous bidding results (from a few dollars to tens of thousands within a month) was irresponsible bidding. The current system encourages it since everyone pays the same price regardless of your bidding. A "pay and you bid" system would help a long way in stabilizing the prices since nobody wants to pay more if they can avoid it. Even the aggressive ones would be more careful instead of simply bidding at ridiculous price just to make sure that they get it, which is happening today. I believe the government knows the ill effect of the current system but the money is too good to resist! Irresponsible bidding is the result of irresponsible system/policy!; April 05, 2010 10:50 PM
Comitted Comuter said...: Demand that the profits from the COE be given back to subsidise public transport: Buses & Trains. Let anyone above 60 travel for free.

Demand that the profits be used to purchase insurance against injuries sustained from vehicle accidents.

Demand that the profits be used for free ambulance service.

Now, let the ministry explain why all these demands are impossible.; April 05, 2010 11:09 PM
indexer said...: Those people who think that the Government implemented COE and ERP to raise tax revenues may want to think again.

What is a good source of tax revenue? It must be predictable (can collect a stable amount from year to year). The old system, which consisted of high ARF, high excise duties, and high road tax to control ownership. Road congestion was controlled by the expensive Area Licensing System (Restricted Zone).

With the implementation of COE and ERP, the Government cut ARF and road tax significantly. So much so that even accounting for the revenues from COE and ERP, the Government is forgoing annual revenue of $1.2 billion every year. http://app.mot.gov.sg/data/s_08_03_06d.htm

The Government has helped more Singaporeans achieve their desire to own their own car. You can see the larger number of cars on the roads and car parks, and today's fresh diploma grads can even buy cars. This was unheard of 20 years ago: one needed to be an executive or towkay to own a car. But sadly, Singaporeans seem to have a very short memory. They see that they have to pay COE and ERP, but they have clean forgotten about the lower ARF, excise duty, road tax, and ALS.; April 06, 2010 7:29 AM
OTB said...: indexer of 7:29AM
What you said is half truth, COE fluctuates so wildly (due to many bad points raised by Mr Tan and rest), you have dealers earning good money and a car buyer suffering. Or vice versa when the COE drops. We need a better system than this.

-OTB-; April 06, 2010 8:26 AM
Anonymous said...: Every household should limit up to 2 car the most. For 3r car and above, buyer from same household should pay 10% more on top of that monthly COE price and 20% more for 4th car and for every car added by 10% more except company car within the 10 year fame period.

This may reduce people simply from buying too many car and help those salesman who really need a car to made a living like me to keep the COE low.; April 06, 2010 9:35 AM
Anonymous said...: @indexer

Singapore is one of most expensive place in the world to own and operate a car. The serious congestions on the roads and car-parks are the result of poor management by the government. Cars were definitely more affordable during the older days. The example you gave about fresh diploma grads buying a car is an just exception, generalizing it is being irresponsible!; April 06, 2010 12:41 PM
Anonymous said...: To indexer,

The topic is "Time to review COE system" and I believe Mr. Tan's intention is to see how it can be made better given the circumstances. Your apple-polishing comments contributed absolutely nothing towards a better COE system. There are many problems with the COE and ERP systems as many have pointed out. I hope the government is not as closed minded as you, but I am more and more convinced that they are like you.; April 06, 2010 1:02 PM
Anonymous said...: The biggest problem with ERP is that it basically just shifting traffics from one area to another resulting in serious congestions in areas where there were no problem before. The alternative paths are usually longer with smaller roads resulting in more time being spent and more fuels being used. It is highly unproductive and anti-environment.

If you provide feedback that the small roads are affected the government would gladly "help" you by installing yet another ERP just outside your house!; April 06, 2010 1:33 PM
Anonymous said...: Just DONT BUY CARS!!!; April 06, 2010 1:34 PM
Anonymous said...: Re indexers' "The Government has helped more Singaporeans achieve their desire to own their own car."

You may also say that they have helped the poor by making them pay GST! Helped the commuters by increasing transport fairs (Bus, MRT, Taxi etc.)! Helped you to save electricity by having one of the world highest tariff...; April 06, 2010 1:46 PM
Anonymous said...: I disagree with SY Tan on the fact that you do not get a good price if you get your own COE.

The supplier will not be able to move a car without a COE. So even if he has say 50 bookings, if the company was not able to secure any COE, then they will have zero sales for the month, if next month the COE price go up, then they will have a lot of damage control to do.

If you have a COE in hand, you are an immediate sale. The salesman, the salesmanager, the company can register a sale immedaitely. you are the KING.

By all means, get a COE yourself (like I did), and go around the dealers, showrooms, and pick something you like. You are the king.; April 06, 2010 4:53 PM
indexer said...: Mr Tan,

I am of the opinion that your suggestion would increase volatility of COE prices:

"- Allow the successful bidder up to of six months to find a suitable vehicle".
This is already being done for COEs in Categories A, B, and D. COEs in Categories C and E are valid for three months. Since we're talking about cars here, individuals should probably stick to Categories A and B to have six months validity, instead of going to Category E.

"- Require the successful bidder to pay only 10% at the time of bidding and the remaining 90% on purchase of the vehicle"
This will greatly increase volatility, as it encourages false demand. Essentially, successful bidders have bought into a call option with a validity of six months. Suppose COE price is $20,000 and they pay a deposit of $2,000. They can then hang on to the COE and see if the price goes up. If the COE price goes up significantly (e.g., to $25,000), they can register a vehicle, sell the vehicle to another party, and pocket $3,000. Regulations such as a one-year hold on transferability will be avoided through the use of private arrangements (i.e., seller retains nominal ownership until the one year is up). Enforcement will be difficult.

"- Change the bidding cycle to three months (instead of the current one month)."
Actually the current bidding cycle is twice per month. IIRC, it used to be monthly, but it became twice monthly with the introduction of the open bidding system. Having less frequent bidding cycles will actually increase volatility, especially in a speculative market where expectations of rising prices will be self-fulfilling. Car dealers will also have to assume very high inventory risk, because they would only be able to sell their cars in a lumpy three-month cycle.

The combined result of the suggestions is likely to be greatly increased speculation and inflated, volatile COE prices.

While many have suggested ways to remove price volatility from COE prices, I would suggest that volatility can only be reduced up to a point, beyond which, we will have to accept such volatility. This is because the underlying driver of COE prices, which is what car buyers are willing to pay, is itself volatile because it is dependent on economic conditions. As we have seen in recent years, economic conditions can be extremely volatile. So when it comes to COE prices, they too will necessarily reflect the volatility in economic conditions.; April 06, 2010 7:07 PM
indexer said...: Rather than having high volatility only in COE prices and low volatility in car population numbers, it might be more acceptable to allow moderate volatility both in numbers and in COE prices. So when COE prices trend higher, release more COES, and when COE prices trend lower, release fewer COEs.; April 06, 2010 7:39 PM

Monday, April 05, 2010

Time to review COE system?

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