Injection of 20,000 COEs could hurt car sales in the short term, dealers say

SINGAPORE: The planned injection of up to 20,000 Certificates of Entitlement (COEs) could hurt their business in the short term as customers adopt a wait-and-see attitude with their purchases, car dealers said.
The dealers said customers are anticipating car prices to fall with the additional COEs, which will be spread across all vehicle categories over the next few years starting February 2025.
The dealers also called for more clarity on when these COEs will be added and how they will be distributed among different categories.
The move to inject additional COEs, the first in over 20 years, is being made because of the upcoming implemention of ERP 2.0, the Land Transport Authority (LTA) said on Tuesday (Oct 29). 
The ERP 2.0 system will have virtual gantries that can better manage traffic congestion. 
Mr Neo Nam Heng, chairman of diversified motor group Prime, said car buyers will hold back on their purchases in hopes that COE prices tumble. 
“You won’t be paying S$115,000 (US$87,000) to buy a Category B car … of course, some of the car buyers will adopt a wait-and-see attitude,” he said. Category B covers cars that are larger and more powerful, with the COE premium reaching a high of S$116,002 this year.
Mr Benjamin Loo, chief operating officer of Cartimes Automobile, said he likewise expects business to be hit. 
“We might face a short-term slowdown where people are just fearful that they are buying cars at a super high price,” he said. 
Still, dealers remain optimistic that the effect on their business would not be severe.  
Mr Loo said that if there are indeed fewer buyers, it could lead to lower COE prices in this period and a resultant surge in demand in the months after that. 
“Right now, if customers were to hold off the immediate buying (of cars), the immediate COE will be dropping … that’s good news for everybody,” he said. “It is supply and demand.” 
Another factor that could suppress COE prices is lower bids from car dealers. When anticipating a drop in COE premiums, they would take this into account when pricing their vehicles.
“Normally, the auto dealers will bid lower prices, because the (number of) COEs will be more (in future),” said president of the Singapore Vehicle Traders Association, Mr Neo Tiam Ting. 
“The bidding price may come down even though it is not the February 2025 bidding exercise yet,” added Mr Neo, who is also the director of car dealership ThinkOne.
Agreeing, Mr Loo said: “Customers normally do not fully care about COE prices but they will look at the full transaction price of the vehicle.
“Thus, a lower (COE) price buffered into the asking price will result in consumers enjoying lower prices overall.”
But car dealers holding on to second-hand cars will likely suffer losses, Mr Neo said. 
“If COE prices come down, their (second-hand) car prices will also go down, so in this interim period, they may suffer with their existing stock on hand,” he said. “But going forward, they can buy (second-hand cars) at lower prices.” 
More details on when the COEs will be introduced will be helpful for potential customers, said the car dealers. 
LTA said the COEs will be injected progressively over “the next few years” but did not give a set timeline. 
Said Mr Neo from Prime: “The numbers have to be more specific – how are they going to distribute (the additional COEs)?
“If the 20,000 is distributed throughout three years till 2027, the increase is quite substantial and sufficient to support COEs to fall below the S$100,000 mark,” he said. 
“If the distribution is for five to six or seven or even eight years, the increase is negligible,” said Mr Neo. 
He added that consumers are the ones losing out if they do not have the information to plan their future vehicle purchases. 
“Consumers need to know, in the next three years or so, what are the numbers – cannot buy a car today (with a COE) of S$115,000, and in the next quarter, (with the COE increase), prices drop to S$85,000,” he said.
“Consumers will hope to have more transparency.” 
In the longer term, car dealers expect a boost in sales when up to 20,000 more vehicles are allowed to hit the roads. 
“If there is an increase of 20,000 (vehicles), that will create more opportunity,” said Mr Neo from Prime. 
“From the business perspective, banks, showrooms, salesmen, everybody upstream and downstream will have extra business to do.” 
Agreeing, Mr Loo said that he hopes this will mean better business on the horizon. 
“Without this news, we expected only that (set) amount of transactions every year, so right now, increasing the number of transactions will help us.”