Tighter carbon emission scheme seen keeping car prices up

Singapore

THE expected spike in the Certificate of Entitlement (COE) supply may not lead to lower car prices in the second half of 2015 due to the tightened carbon emissions-based vehicle scheme (CEVS), with continued demand from owners of ageing cars likely to buoy COE premiums as well.

The new COE quota for May-July 2015 will have 44.6 per cent more Category A small car COEs than the current quota for February-April 2015, while Cat B big car COEs get 28.5 per cent extra. Cat E - the open category which currently tracks Cat B in terms of premium - will enjoy a 54.4 per cent jump.

Despite the generous increase in COE supply, most dealers are not expecting COE premiums to adjust downwards much, if at all.

One major reason is the current scramble to procure a new car ahead of the refined CEVS, which will lower the carbon dioxide limits for rebates and surcharges.

Starting from July 1, 2015, virtually all of the current popular mass market models will lose their S$5,000 rebate although the top band, A1, will see a generous rebate increase from S$20,000 to S$30,000. But unless very much cleaner but still affordable models are introduced in the second half, it is unlikely that the ordinary Cat A buyer will get to enjoy any rebate at all. The rush to register a new car before the deadline is not confined to Cat A. Cat B buyers are also pressing dealers for timely registration because of the CEVS surcharges, which for the lowest band, C4, will be bumped up from S$20,000 to S$30,000.

"Since the CEVS announcement (on Feb 24), we have been seeing very unusual behaviour from customers and we will probably see it until July," says Nicholas Wong, general manager of Kah Motor, the authorised Honda distributor.

This "unusual" buying behaviour has caused the COE premiums for both Cat A and Cat B to jump by about S$10,000 in the last three bids.

"So despite a bigger COE quota, premiums may not drop by much. The only help is that they won't be pushed higher," adds Mr Wong.

With the loss of the CEVS rebate, that means car prices should be kept on an even keel after July 1.

Over at Opel and Chevrolet dealer Alpine Motor, general manager George Lee believes that car prices may even creep higher. "I doubt COE premiums will drop due to strong replacement demand, and most 'normal' cars will cost at least S$5,000 more, some S$10,000. Prices may actually be higher than what they are today, and the evidence is from the recent bidding exercises." Also, S$5,000 forms "a very small percentage" of today's total car price.

"The lack of a rebate will not deter buyers," he says. "Anyway, some dealers will probably sweeten the deal by absorbing some of the lost rebate."

But Ron Lim has a different view. The general manager for sales and marketing at authorised Nissan distributor, Tan Chong Motor Sales, reckons that COE premiums may collapse after July 1.

"Since the announcement about CEVS and zero per cent vehicle growth, there has been strong demand from all consumers, not just replacement buyers," he says. "Some dealers have even committed to deliver the cars before July."

According to Mr Lim, the result is that COE premiums have been "artificially pushed up" and he does not think these levels are sustainable as the increases were "too sudden and too aggressive".

He adds: "The rebate is S$5,000, but the last increase was almost as much. It doesn't make sense, so there is a big question mark about where COE premiums are headed after July 1."