Singapore

Motor traders propose ways to stabilise COE supply

Industry body urges Govt to ditch current formula of determining COE supply and work out buffer system for times when supply tightens
Published: 4:02 AM, August 28, 2013
Updated: 4:00 AM, August 29, 2013
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SINGAPORE — The Motor Traders Association (MTA), an industry body representing 27 companies here, has called for the 23-year-old Vehicle Quota System to be updated or overhauled.

In a letter to the Land Transport Authority (LTA) dated last Friday, the MTA proposed solutions for a more evenly-distributed Certificate of Entitlement (COE) supply, noting that the current “drastic cycle of bumper harvest and famine” is “the root cause of many frustrations and dissatisfaction” faced by car buyers.

The industry body made three suggestions to even out the COE supply: Setting aside a buffer supply of COEs, imposing a mandatory lifespan for all vehicles and removing the option for owners to extend their vehicles’ 10-year lifespan by scrapping the Prevailing Quota Premium (PQP), which is a three-month moving average of COE rates.

The LTA said yesterday it is examining the proposal, as part of “a longer-term study to see if there is a practical way of putting aside some of the supply from the peak expected in the next few years, and to save it for the future when COE supply becomes tighter”.

The MTA proposal comes as the LTA is in the final stage of review of the COE system to make it more socially equitable.

As the COE supply is influenced mainly by two factors — vehicle growth rate and the number of vehicles taken off the road — a bumper crop is expected from next year to 2018, as cars bought during the supply boom a decade ago are likely to be scrapped. A supply drought is expected to follow between 2019 and 2023.

MTA President Glenn Tan said a more stable and manageable COE supply should translate to “more stable and manageable COE premiums”.

The association called on the government “to ditch the current formula of determining the COE supply” and instead base supply on the annual total vehicle population and dividing it over a 10-year period.

This would allow the authorities to work out a buffer “to have some degree of flexibility to deal with any unforeseen circumstances that might derail the need for such supply annually”, he added.

“The fact that potential car buyers are aware that a fixed-supply of COEs will always be there, it would only be natural for them to not chase too hard if COE premiums start moving higher,” said Mr Tan.

To deal with the bumper supply of COEs expected in the coming years, the MTA also suggested extending the lifespan of vehicles that are approaching their 10-year lifespan during this period, for another one to two years.

The tax concession accorded to vehicle owners who scrap and replace their cars before the 10 years are up — known as the Preferential Additional Registration Fee — could also be pro-rated accordingly, without putting too much pressure on COE premiums, as a result of the expected huge number of cars being scrapped, added the association.

The MTA feels the implementation timing is critical, adding that the authorities should take action before the bumper supply of COEs is released from next year. “Rather than wait for the next cycle to kick in, it is better to address the issue now once and for all,” Mr Tan said. “MTA believes the Vehicle Quota System is one policy in need of updating/overhaul.”

During the Committee of Supply of Debate this year, Transport Minister Lui Tuck Yew had acknowledged that tempering the peaks and troughs of the COE supply is a good idea, but said “the difficulty is how to do it without causing other problems”.

He had also asked the LTA to consider if there was a practical way to set aside some COEs from the expected peak for a time when COE supply becomes tighter.

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