Re-tune the COE quota

By Chemical Generation

The government just announced a change in the COE quota system. From April onwards with a pro-rated formula first and then every 6 months from July, the car population growth rate would be the number of deregistered vehicles in the previous 6 months period plus 1.5% of the current car population.

The aggravating factor to the decreased supply of COEs is that since COEs are fewer, its demand and price becomes inflated, there would be more people holding on to their cars. Hence, the actual number of deregistered COEs recycled into the market would in turn be fewer.

The car industry community is forecasting trends of 30% fewer COEs and higher prices for new cars as a result. Kia has already increased car prices by $5000 for Cat A cars, the staple category for the middle class driver.

For the car buyer, the road ahead is fraught with racing prices. In February 2000, the COE for a 1600cc car and below was a frightening $43,998 and in that year, the COE dipped to a so-called lowest price tag of $32,800 in December.

Whether there would be a repeat of the terrifying period when COEs for small cars hovered in the $30,000 and more range remains to be seen.

Is the COE quota reduction good or bad news? Without question the answer would depend on whom you ask.

Authorised dealers would feel the brakes applied on their sales. Used car salesmen see it as an opportunity for them to compete again as buyers might find the prices of new cars with new COEs daunting. Car buyers would generally be irritated that their desire to change cars every 3-5 years would be more costly than before and the post-1990 Singaporean disposable car culture might stall for a while.

Car owners, however, might heave a sigh of relief as there would be fewer cars on the road and a corresponding decrease in the frequency and intensity of traffic jams consequently, depending on where and when one drives.

Over-extending a bit, taxi drivers might also see this development positively as those who do not want to take buses but would not buy a car, might end up taking taxis as a substitute to owning a car.

Strangely and probably as a result of bad market forecasting, NTUC’s car-sharing business is coming to a stop when this announcement on the reduced COE numbers could actually revitalise the car-sharing niche market. Furthermore, the government’s purse would also fatten from higher COEs. On the other hand, fewer number of cars on the roads might mean fewer car-related taxes e.g. road tax, ARF.

The government seems to be swinging back to the argument that it wants the car population controlled. In the past few years, the government allowed the growth of cars because of the public’s expectation of car ownership. Hence, while owning cars became less expensive relatively, car usage became more expensive with the erection of more ERP gantries and more punitive ERP rates. Nevertheless, the sudden surge in cars was not a result of government generosity but bad maths.

The LTA came clean that the formula for using projected deregisteration of cars for the year instead of the actual deregistration of cars for the past year, swerved the regulation on car population into a ditch.

In recent years, Singapore’s vehicle population growth rate was greater than 5% instead of the allowable growth of 3% stipulated between 1990 and 2008. Last year, when the allowable growth rate was halved to 1.5 per cent in an effort to slow down the car population size, the actual growth was 3.4%.

Since 1990, the COE demand and supply has been based on what you can bid and what the government wants to release into the market. This is probably the easiest way to manage the car population – i.e. car buyers outbid each other to own a car, or cars.

Therein lies the conundrum – is there a better route to control of the traffic problem? Yes, assuming the government breaks free of the COE mindset.

Controlling the car population need not only be through the failing COE system. The direction to take is that it is not about regulating the car population per se, it is about controlling car congestion on the roads even without the COE. It is not about not making people own cars, but making driving so expensive that they would not want to use their car unnecessarily.

Without the COE the car is “cheap” considerably. Car owners therefore won’t feel pained if they leave their car at home and routinely take public transport. This is the re-tuned thinking into allowing car ownership without causing car congestion.

The Off Peak Car scheme, as an example, already offers potential if it can be revamped to a mainstream rather than minority car ownership scheme. Allow people to own cars, but driving it indiscriminately becomes a hole in the pocket, this thus potentially decelerating the car congestion problem on the road.


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