Suffocating car prices with shorter loan period

By Terry Xu

Under the Budget 2013 measures announced on Monday, vehicle buyers will now have a maximum of five years instead of the original ten years to service their car loans. They would also have to foot a down payment of 40 per cent or more for a new vehicle. And apart from these two, there will be additional increase in registration fee for more expensive cars.

A highly possible move to curb to growing COE prices that has incurred the wrath of the common Singaporean folks. For instance, COE price for Caterogry A vehicles (1600cc and below) has since early Jan 2012, rose from S$46,889 to the recent COE pricing of S$78,301, with the highest reaching at S$92,100 in the 1st round of bidding in Jan 2013. (LTA link)

If someone were to purchase a car such as KIA’s Cerato forte (1591cc) with an Open Market Value (OMV) of S$12750* and taking the recent COE price announced on the 2nd round of bidding exercise for CAT A vehicles which went at S$78,301.  For simple calculation purpose, the individual would have to pay 40% of the total sum of COE and the OMW which comes to be S$36,420 and monthly loan for a 5 year period comes close to a thousand dollars.

The number of people who can come out with the cold hard cash of close to S$40,000 or more might just be really few and even if they could, would anyone bear to throw that amount of cash in? The government would probably foresee a drop in people bidding for COE, which would have a cooling down effect on the COE prices, and also curb the growth of vehicles on the road. But there is still much to be seen if such new measures would be effective.

As some might say, the poor are adversely affected by this new measure, while the rich barely feel a pinch. Not to mention the monthly installments that one has to pay for its upkeep apart from the fuel and taxes. People might rebut and say, “if you cannot afford it then don’t buy it” which seems to be the idea that the government might be insinuating. However there are cases, which people will find it hard to live without a private mode of transportation.

There are a few groups of people who would have valid reasons to get a car;

• Those with elderly parents who need to go to hospitals.
• Families with expecting mothers for regular checkups.
• Those with young children who need to be sent for check ups and simply to travel from one place to another. (Public transportation is a nightmare with young kids who cry unnecessarily)
• Salesmen/women (Property/Insurance/Marketer and many more) to travel around Singapore to meet with clients.

We can all forget about the alternative of taking the public transportation due to the long waiting time and crowded seats. How about taxis? Taxis are viable if they are taken on a periodic basis. But if its meant for a long term commitment or purpose, such as the ferrying of kids to school, shuttling of parents/wife to healthcare institutions, and meeting your clients, taxis are hardly an economical nor dependable mode of transport. (Has anyone tried calling taxis during peak hours? Its an extremely frustrating ordeal you would have to go through as a paying customer)

And how would this new measure benefit young families with children who are just starting out their career? Families with young children will be stuck with additional financial difficulties, to be tied up with high cost of servicing their car loan to purchase a car that they need and along with managing their existing high expenses with childcare and other daily expenses. Perhaps young families will have to think twice about getting their new family car and people who have been thinking twice about the cost of starting a family will consider thinking thrice.

Like someone said on the net,

“Government deals with problems like dealing how one would face with a Hydra, they use a solution on one problem just to create two new problems”

That saying if COE prices does go down in the distant future due to this curbing measure, cars would be more affordable for lower income families with lesser disposable income. But it is pretty unlikely that it would get any better for such families, given that the COE system is still based on the basis of “highest bidder wins”, a large contributing factor in pushing of the COE price to go up and this tend to favor the rich. In fact, despite the yearly increase in COE prices in the CAT A and B category, there has still been an steady increase of vehicles on the roads till date. (LTA statistics)

So a question here is, is COE system actually working the way it should be?

There have been calls for a similar balloting system used by HDB to replace the existing COE system that would be much fairer to lower income families. But certain groups of individuals might not favor such a move that would lengthen their wait for the vehicle. If the idea of balloting is to be rejected on the basis of having a much dynamic free market, then an alternative would be a tier based COE pricing system for individuals/families so that people would be paying lesser to buy a car for family usage while those who purchase more than one car would foot more. After all when given enough benefit of doubt, we can be assured that COE is not a system which the government came up with to make money but to control the number of vehicles we have on the streets.

Or on another note, government could look at really improving the public transportation system to convince citizens to shift their choice of transportation. Waiting for a bus for more than 25 minutes or cramming into a packed train to work? I suppose people would still prefer paying for an overly charged vehicle.

Much said about addressing income inequality in the Budget 2013 in terms of assisting low wages earners to improve their income and providing more funds for educational for the less well to do families. But this apparent measure to curb the price of COE might just widen the existing inequality that has been growing amidst the economic growth that the country has enjoyed these recent years.

We talk much about inclusiveness but much has seen to be done to exclude.

*Open Market Value from LTA’s website.