Which COE scheme is right for you?

SINGAPORE — If you browse the price lists of car dealers here, you may notice a strange thing: Different prices for exactly the same car model.

The current prices for a Toyota Prius from Borneo Motors, for instance, are listed as S$139,888 and S$143,888.

The difference? Borneo calls the more expensive option its Gold Price, which comes with a guaranteed Certificate of Entitlement (COE).

Such guaranteed COE schemes are common throughout the car trade here. At Mazda Singapore, for example, cars under the company’s Raffles Plan cost S$1,000 more.

The extra money buys a guarantee from the car dealer that, whatever happens to COE prices after you book your car, the dealership will secure you a COE within an agreed period, usually three months.

“You might as well have that peace of mind for S$1,000,” said Mr William Low, the sales manager for Mazda Singapore.

This two-tier pricing system exists because car dealers in Singapore are in the unique position of having to price their products without knowing their actual cost. Car prices here include the cost of the COE, even though dealers bid for it only after securing your order.

RISKY BUSINESS

That means the business is inherently risky. If a dealer prices his car at S$100,000 with the expectation that the COE portion will cost S$50,000, what happens if the COE price spikes to S$60,000?

To cover that risk, a standard sales contract only requires the dealer to attempt to secure a COE for the customer, usually within six bids.

If those attempts fail, several things could happen. Customers sometimes try again with a fresh sales contract, or the dealer could ask the customer to pay a little more to improve their chances of securing a COE, a process the motor trade calls “topping up”.

A third outcome is that the sale is cancelled, the dealer refunds the customer’s deposit, and both go their separate ways.

“It does happen sometimes,” said Mazda’s Mr Low. “Some customers are unwilling to top up. Then, the customer might (go to a different dealer to) buy another brand of car. Someone who had a sales contract with another dealer but was unable to secure a COE could also switch brands and buy a Mazda instead.”

OFFLOADING RISK

The chances of that happening tend to increase around major motoring events like the Singapore Motorshow, especially if car companies come up with aggressive promotions and the market rises sharply on the back of strong sales.

If a dealer cuts his retail price by, say, S$3,000, and the COE premium increases by S$3,000, that effectively gives him S$6,000 less to bid for a COE.

In such cases, it may be better to opt for a guaranteed COE. That offloads all risk to the dealer, although conversely, a drop in the COE price means you would have paid extra cash for no reason.

Another instance where guaranteed COEs are recommended is when a customer wants to be sure of being able to take delivery of his new car before a certain period, for instance the Chinese New Year holidays.

“If you must have your car by a certain date, then you should go for a guaranteed COE,” said Mr Low. “On the other hand, a few customers feel they can afford to wait. Some are hoping that COEs will drop to the S$40,000-plus range because people are more cautious about spending these days.”

With the COE supply looking set to contract, however, many car dealers feel that such a steep price drop is unlikely. That could be why around 90 per cent of Mazda customers opt for the company’s Raffles Plan.

There are few enough guarantees in life as it is, after all.