Motorists, dealers waiting to see how proposed COE changes will impact car prices

SINGAPORE – Car dealers and motorists are taking a wait-and-see approach to the proposed changes to the certificate of entitlement (COE) system, although some buyers are eyeing a car purchase now before current rebate schemes are removed.

Car owners like Gina Koh, for instance, said she was in no rush to buy a car now, especially since it is unclear if there will be changes to the COE renewal scheme.

The 38-year-old, who works in the education sector added that the COE for the Nissan Note she drives now expires at the end of 2027, and she wants to see if it will make more financial sense to renew her COE, or buy a new car.

Similarly, sales manager Ben Tjhin, who is in his 30s and drives a car with a COE that also expires in end-2027, said the proposed changes are unlikely to have much of an impact on him at this stage.

On Oct 8, the Land Transport Authority (LTA) published a consultation paper in which it outlined proposals to merge categories A and B into a single category, and then apply a rebate or surcharge to the prevailing COE price based on the car’s value.

Ron Lim, the sales and marketing head of Tan Chong Motor Sales, said merging Category A and B COEs into a common pool is easy to understand, but it is not so clear how the level of rebate or surcharge based on a car’s value will be determined.

Lim was among 11 motor dealers The Straits Times spoke to who said they do not expect the proposed changes to bring down COE prices. In the latest COE tender exercise on Oct 7, a Category A certificate cost $130,001 while the Category B premium was $130,100.

LTA suggested two possible banding systems that could be implemented. One has three bands while the other has five.

Under the three-band option, cars in the lowest band get a rebate of $15,000, while those in the highest band incur a $15,000 surcharge.

Cars in the middle band will pay the full COE price with no rebate or surcharges.

The five-band option includes two bands with smaller adjustments – a rebate or surcharge of $7,500, depending on the band the car falls in.

LTA said it will determine the band that the car will fall under based on the median open market value (OMV), which is the price of a car before taxes.

However, the OMV is a fluctuating figure, said Lim, owing to external factors such as foreign currency exchange rates and supply chain changes.

“The current parameters, while insufficient, still have their merits,” he said.

Category A COEs are meant for cars with an engine capacity that does not exceed 1,600cc and a power output of 130bhp, or for electric vehicles (EVs), up to 110kW.

Carmakers have lately started tuning high-end cars to fit into Category A, resulting in premiums for the mass-market category converging with the prices of Category B COEs. This was a key factor that led to the COE review exercise.

Lim said the median OMV of the car model is not a figure that is easily transparent to the public, and its derivation can be skewed.

For instance, a parallel importer can bring in a model with an OMV that is lower than one brought in by an authorised dealer. That will lower the car’s median OMV, he added.

LTA said it will refer to the OMV of the cars registered in the previous year to determine the car’s banding under the proposed system.

Vantage Automotive managing director Adelene Tan – whose dealership distributes BYD in Singapore – said she is wondering how facelifted models will be handled under the proposed regime.

When cars go through mid-life updates, their OMVs can change when different equipment or features are added to the model. So, it would not be accurate to determine the banding based on the median OMV of the pre-facelift model.

With the proposed change, motor dealers might still try to lower the OMVs of their cars to get them into a more favourable band.

For electric vehicles, where the battery is the costliest component, Premium Automobiles managing director Lee Hoe Lone said dealers could turn to offering smaller battery capacity models, and thus reduced operating range.

While this could lower their OMVs, it could also result in an electric car having to get a charge after 300km or so, instead of about 400km now, which seems like a poorer ownership experience, he added.

Several motorists also said they are concerned that those with deeper pockets – who tend to go for cars that fall into Category B – could end up muscling out those looking for mass-market options, if a single passenger car category is created under the mooted plan.

Regional business development manager Patrick Yap, who is a Tesla owner, said: “Combining the two categories will not add COEs, so prices would still depend on supply and demand.”

Mazda Singapore managing director Jason Lim said the COE is not the only component making up the total price of the car.

The impending reduction in incentives for electric vehicles and the corresponding increase in penalties for non-EVs from Jan 1 means that cars will cost more after 2026, even if the COE price remains unchanged, he added.

The Mazda 3, for example, will incur a $7,500 surcharge under the Vehicular Emissions Scheme, up from $0 currently.

Ng Lee Kwang, a veteran who has been in the motor trade for over 30 years, said that if the changes kick in, dealers will need a few rounds to figure out the appropriate COE price.

He said: “This might be a good window to secure a not-so-expensive COE”.