Car buyers should rightly be enjoying low COE (certificate of entitlement) prices now, as the supply of certificates is set to reach record levels this year (2016). But two factors have thrown huge spanners into the works.
One, the Monetary Authority of Singapore easing car loan rules in May. Two, the rise of big private-hire players.
The first factor has had the effect of lifting floodgates of a dam. It released a deluge of pent-up demand which drove premiums northwards immediately. The impact of this factor, however, is expected to be temporary. Like the flow of a river which surges once floodgates are open, flow will return to a steady state with time.
But the second factor is a big unknown. Before the Land Transport Authority (LTA) blocked the identity of bidders in June 2016, some 15 percent of car COE bids were found to be attributable to Uber-owned Lion City Rental.
While Uber is arguably the most aggressive player in the fast-evolving private-hire space, it is not the only player. There are several others. Together, they have fuelled an unprecedented growth in the rental car population.
According to LTA figures, there were 40,604 rental cars here as of July 2016 – nearly 40 percent more than in December 2015, and more than double the population in 2014.
This trend is fuelling the rise in COE prices, and there is no sign of it slowing down. Assuming the other private-hire players contribute another 10 percent to COE bids (a conservative estimate), there is now 25 percent more bids for car COEs at every tender.
Their participation affects prices in more ways than one. Before the identity of bidders was shielded, we could see that Lion City Rental accounted for the most aggressive bids. Which means it pushed prices up by its presence, as well as by its bidding fervour. Uber, after all, is a company that is willing to lose US$1.6 billion in six months.
Like taxi companies before they were banned from bidding for COEs, private-hire firms have little to lose by pushing premiums up. They simply pass the cost to their hirers. By just raising rental rate by $5 per day, they would be able to recoup more than $18,000 over the lifetime of each rental car.
But car buyers have to stomach the inflated premiums by themselves. How much have COE premiums been inflated, you ask?
Well, if we were to translate the 25 percent increase in bids to price, it is safe to say car COE premiums have risen by at least 25 percent because of private-hire bidders. This estimate ignores the aggressive – nay, reckless – nature of such bidders.
In other words, COEs could well have been $39,000 and $42,000 for small and big cars respectively if it were not for the private-hire phenomenon.
That, however, is not the whole story. These players may still be buying older vehicles from the market, thereby delaying the scrapping of cars, and in turn, reducing the number of COEs recycled back into the system.
How much of an impact this has on COE supply is hard to say. But assuming just 10 percent of the 19,000 car COE revalidations recorded in the first six months of the year were attributable to private-hire companies, the supply would have risen by 1900 COEs.
According to LTA statistics, that translates to 4 percent of the total number of COEs available to car bidders during the period. If supply has a linear impact on prices, then premiums could have softened by another 4 percent.
So, the premiums could potentially be $37,440 and $40,320 for small and big cars respectively. And if we factor in the cohort of car owners who would have scrapped their old cars instead of revalidating them because current car prices were still too high, the COE supply could well have grown by another 5 to 6 percent. This in turn would have driven premiums lower to $35,200 and $37,900 respectively.
Those prices are a far cry from the $53,000 and $57,000 we see today. So, if you are among those who have been waiting in vain for COEs to fall more substantially, blame Uber and gang. Somehow, they have convinced the Government that they are the best things since sliced bread.