Singapore needs to move away from its broken system of COE

Singapore needs to move away from its broken system of COE

by Robin Low

It is clear that motorcycle dealerships have been overbidding Certificate of Entitlement (COEs) and driving up the price of motorcycles.

In Singapore, with a $12,000 COE, a small motorcycle can easily cost $18,000, making costs for delivery and business high. For families who cannot afford cars, this makes things worse, especially when the motorcycle is needed for commuting to work.

The COE system is simply flawed. With a small amount of COEs available, motorcycle dealerships can bid up all the COEs and control the pricing. The fact that they do not need to pay the full COE amount and just a small amount for Temporary COE (tCOE) makes it really broken for years.

A high COE benefits the dealerships as even the buyers for the smallest motorcycles need to take loans. These loans range from 4% to 10% or more for used bikes and come with a lot of clauses to prevent early termination.

With high COE, the costs for a new bike are high, and it also drives up the cost for USED bikes and guess what? The dealerships win again.

For the Land Transport Authority (LTA), doing nothing was a solution they have always been good at. Watching the COE prices climb from $100 to $1,000, then $2,000 and later to $4,000, it seemed like a simple way for the government to make more revenue, and it is not like the government is not collecting enough tax.

After 2020, the COE shot up to $10,000 then $12,000 for months, and there was a lame attempt to reduce the COE as many businesses and livelihoods were affected, and the tCOE was shortened to 3 months and a cost of $800.

Now, because elections are coming around the corner, a coordinated attempt to reduce COE prices with:

1. The introduction of an unsubstantiated scheme that forces people to scrap old bikes and give them $3,500 ends in April 2023.

This scheme again benefits motorcycle dealerships as there are a lot of cheap and worthless serviceable motorcycles that were going to the scrapyard, now worth at least $3,500 as the government is providing incentive to the bike shops to keep these non-running bikes off the roads.

Why does this scheme exist? With a high $5,000 COE, will anyone riding an old pollutive motorcycle renew COE and continue to pollute? We already have a strict motorcycle inspection process, and a COE system to ensure old bikes get scrapped. No need to give money and force people to scrap their bikes.

Why give $3,500? For dealers who have 1,000 old bikes they cannot sell in their inventory, they can now get $3.5 million.. they probably got these bike when they trade in the bikes for new bikes, and left them for dead, but now it is worth a lot of money.

With the April 2023 deadline to claim the $3,500, many motorcycles will be deregistered and scrapped, releasing more COEs.

2. The whole tCOE is simply allowing dealerships to speculate and make money.

After you win a bid when you bid for a COE, you will be given a Temporary COE (TCOE). The TCOE is valid for 6 months for Categories A, B and D (for Category D TCOE obtained before the March 2022 2nd bidding exercise), 3 months for Categories C, D (for Category D TCOE obtained from the March 2022 2nd bidding exercise onwards and before the May 2023 1st bidding exercise) and E, and 1 month for Category D TCOE obtained from the May 2023 1st bidding exercise onwards.

I know people who made a lot of money on car COEs, they would bid when there is an uptrend, say $30,000 for a COE and when the price of the COE increases to $50,000 a month later, they would sell their month old COE for $40,000 and people would buy these.

Similarly, a motorcycle dealership can drive up the costs of COEs and earn more from loans by just shorting all the COEs. When they bid for a COE, they just pay a small amount (why not full amount?), and they can keep the COE for months.

Now with the election around the corner, LTA finally decided to cut the duration for the tCOEs from 6 months to 3 months and now to 1 month.

Why has this not been done for YEARS? Why is there even such a thing for tCOEs if not for speculation?

Imagine bidding for a $12,000 COE. The dealer pays only $800 for each COE, and only when they sell the bike with the COE, then they need to pay the full amount.

With the recent changes to the tCOE for motorcycles, dealers have to pay only $1,500 when they bid for the COE and the duration they have to sell the motorcycle with the COE is reduced to one month from the previous 6 months, further reducing speculation and we get the COE price today at $5,002. (By the way, this has not changed for cars, they can still bid for fun and keep the COE for 6 months and try to sell for a higher price if the COE goes up)

What is the bid deposit payable under the Open Bidding System?
Under the Open Bidding System, bidders need to pay a fixed lump sum deposit of $200 (for
Category D COE obtained before the March 2022 2nd Bidding Exercise), $800 (for Category
D COE obtained from the March 2022 2nd Bidding Exercise onwards and before the May
2023 1st Bidding Exercise), $1,500 (for Category D COE obtained from the May 2023 1st
Bidding Exercise onwards), and $10,000 for Categories A, B, C and E

This clearly shows that some of the dealers have been gaming the system for profit at the expense of consumers and businesses.

It is simply ridiculous when pricing for motorcycles is non-transparent, and buyers just have to pay and pay.

Even at $5,002, the smallest motorcycles still cost about $9,000, which is far above the $3,000 cost anywhere around the world, but this is a significant step in curbing profiteering.

At least, the COEs are now looking better than before, creating another problem.

If you bought your new motorcycle at $16,000 a month ago, and the new bike now costs $9,000, why would anyone keep the expensive COE motorcycle?

Would the bike be scrapped to get $12,000 back (which is higher than the current bike price), and will it generate massive amounts of waste and paperwork?

This is a problem caused by the LTA’s unwillingness to manage the speculative behaviours of the motorcycle dealers and allow them to profit from all the LTA’s schemes for years, and yes, it is a mess now.

I would foresee many new motorcycles bought in 2023 to be scrapped, creating massive inconveniences with buyers and dealers, and releasing more COEs, but with these buyers would also need a motorcycle, and the demand for new bikes will increase.

This system is broken, it is unsustainable, and allows profiteering. When the Singapore motorcycle population is so small, and most motorcycles on the roads are probably Malaysian, why is there a need for the COE anyway?

Motorcycles in Singapore do lane splitting, so they do not contribute to traffic much, so why is there a need to control the motorcycle population when there are already many Malaysian motorcycles on the roads, and they do not contribute to congestion?

I do not think that having schemes to drive up costs and boost the reserves by collecting Motorcycle COEs is an efficient way for Singapore to move forward. In the near future, we will have battery swap electric motorcycles coming in, and this will definitely reduce carbon footprints, but with the archaic COE system ARF and taxes, will this make sustainability cost more?

We need a new system going forward, and I do not believe having COE for motorcycles makes sense. I would propose electric motorcycles be excluded from the COE system as they do not really contribute to traffic and if the electrical grid is using sustainable sources, it will also contribute very little overall carbon.

We need to move forward, and move on from this broken system.

This was first published on Robin Low’s medium page and reproduced with permission

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