Is the COE system still relevant today?

Written by Cheryl Tay on . Posted in Cheryl Tay Blog | Blog Post of Cheryl Tay

On Tuesday night, I was invited onto the panel of ”Talking Point: The Vote”, a one-hour ‘live’ talk show on Channel NewsAsia that discusses the hottest and most divisive issues in Singapore.

 

The topic for this week is on COE woes:

 

“In the latest bidding exercise, Certificate of Entitlement (COE) prices rose for all categories. The biggest rise was in the small cars category. Has this system really worked in managing our vehicle population growth, or has it simply priced cars out of the reach of ordinary Singaporeans? We take a hard look at how relevant this system is, and if it should be improved?”

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Hosted by Dominique Loh and Daniel Martin, I joined Assoc Prof Lee Der-Horng, Dept of Civil and Environmental Engineering from the National University of Singapore and Raymond Tang, Honorary Secretary of the Singapore Vehicle Traders Association on the panel.

 

Prior to the show, public could vote on their website for YES or NO to the question: “Is the COE system still relevant today?” When the show started at 8pm, two-thirds of the voters said no and it peaked to about 83 per cent somewhere along the show. By the end of the show, the results were:

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We each hold our own opinions and for me, I feel that the COE system is still needed in the overall system of mobility in Singapore, but it is worth a relook and some components can be reviewed.

 

For the benefit of those who are not familiar with the COE (Certificate of Entitlement) system, it is actually known as the Vehicle Quota System and was instituted by the government of Singapore since May 1990. Designed to limit car ownership and hence the number of vehicles on the country’s roads, this system requires residents of Singapore to bid for the right to buy a motor vehicle, with the number of certificates deliberately restricted. 

 

The COE allows holders to own a car for a period of 10 years, after which they must scrap or export their car with financial incentives or bid for another COE at the prevailing rate if they wish to continue using their car for a further five or 10 years.

 

Essentially you can say that Singaporeans don’t really have full ownership of their cars, but rather, the COE serves as a form of licence for us to have a vehicle for a decade.

 

I have to say that, where credit is due, the COE system does help to curb vehicle growth, especially in a land-scarce city like Singapore. It serves as a deterrence for people to buy cars, making them think twice before they buy a car. Also, it ensures that the automotive industry in Singapore is ongoing as most people replace their cars before 10 years. In a way, this mandatory car ownership renewal process ensures safety as it means not too many old cars are lying around and because of the high prices people pay to get their cars, they pay more attention and make more effort to maintain their cars.

 

However, what’s happening is that the COE prices have been escalating and resulted in cars becoming a luxury good in Singapore and depriving people who really need the car. At the moment, there are five COE categories:

 

Category A : Cars (1,600 cc and below) and taxis

Category B : Cars (1,601 cc and above)

Category C : Goods Vehicles and Buses

Category D : Motorcycles

Category E : Open Category

 

The COE quota is set every six months – the actual number depends on the number of cars de-registered in the last six months and the vehicle growth ceiling set by Land Transport Authority.

 

Here are some of my thoughts on the COE system:

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1) Favouring the wealthy – COEs are allocated based on a person’s ability to pay rather than his/her needs

The auction-style sees the COE system favouring the wealthy who can afford to bid with higher prices for COEs, even affording multiple COEs, while lower income families which may need a car more, are forced to pay the COE prices that are driven up by demand. The COE system has made cars a luxury good and instead of people considering a car because they need it, it is skewed towards those who are more financially able and in better positions to pay for the COE. In other words, COEs are going to the rich rather than to the people who need it, hence denying people who really need a car the ability to get one. Of course, those who need it may not necessarily be able to afford it, but that’s another can of worms.

 

2) No segregation of user groups

COEs are segregated according to car engine size and cars of smaller engine capacities are supposed to be cheaper, however that has been negated due to premium car brands launching small-engine models. The different income brackets are also not taken into consideration.

 

3) No redistribution of resources

The COE system encourages inflation. For example, service businesses that require vehicle ownership pass on the increased costs to consumers. Also, the money put into the high COE prices could have been re-invested into innovation by entrepreneurs. 

 

4) Resulted in certain social issues such as driving behaviour

There’s this “I want more” and “Must have car” thinking that more people are adopting these days. For example, COE for large cars in December 1994 was S$110,500. If it is adjusted for inflation, then it should be much larger than today. It is people’s expectations of their needs that have changed. Also, some driving behaviours such as selfish attitudes are seen on the road. People think they have a deserving entitlement to the road because of the high prices paid to obtain their cars.

 

5) Too drastic fluctuations in COE price every fortnight cause instability

This leaves little room for prediction and gives some instability to automotive-related businesses. For example, the aftermarket car segment follows the cycles of the COE prices. When the COE prices are high, people will spend more on parts and accessories for their cars. Conversely, when COE prices are low, people will just switch cars every three to four years. The pre-owned car market is another area to look at – that is a viable option as there is the prevailing COE tagged to it, but if COE prices go too high, people end up not even buying any car, new or pre-owned.

 

6) Lack of automotive heritage in Singapore

At the end of 10 years, renewing the COE life for an existing car is simply too much for some people. As a result we don’t have a very vibrant vintage car scene. Another issue is also the modern classics, such as the Toyota AE86, which lends significance in feeding people’s passion for motorsports for instance. (A related but separate debate there.)

 

Some suggestions that have come about to tweak the COE system are:

> Creating a separate COE category for taxis and/or luxury cars

[UPDATE on 27 July 2012, 730pm: From August onwards, taxis will be taken out of the COE bidding process. Taxi operators will then pay for COEs based on the Prevailing Quota Premiums (PQP) of CAT A, under the Vehicle Quota System, irrespective of whether the new taxis are intended to replace deregistered taxis or add to the existing fleets.]

> Segregating COE categories according to income brackets and/or household needs

> Balloting

> Queueing system

> Pay-as-you-bid model where successful bidders pay the same figure they bid rather than pay the highest figure of all the bidders

 

I feel that the overall transportation model (ie. walking connectivity, bicycles, buses, train, car sharing, private run buses, district planning etc.) needs to be enhanced and the COE system is instrumental in the entire system of mobility. The public transportation system needs to get more superior, to match the conveniences of that in Hong Kong for example – a similar cosmopolitan city without the need for such a COE bidding system for cars. Again, it is the mindset of the people as well as the convenience of the public transportation system.

 

Well, let’s not forget that the COE is only one significant part of vehicle ownership in Singapore – there are still other components such as road tax, insurance, ERP, parking and getting summons, if you are not careful!

 

There is also the influx of population that is not matched with the same increase in roads. There are only so many roads we can build to cater to the increasing population, hence there is some population management that can be looked into as well.

 

In conclusion, the COE system does address the issue of vehicle population growth and I don’t think it needs to be scrapped totally, but there are some policies within the COE system that needs to be reviewed I feel. Another related issue that needs to be looked into deeper is the vehicle usage, which will help with vehicle growth as well. Traffic congestions stem from too many people wanting to go to the same place at the same time. While increasing costs of attaining a car, building a better road network and improving the public transport systems do help, it is the mindset and the usage of the vehicles that need to be taken into greater consideration.

 

For me for example, I drive a seven-year-old Mitsubishi Lancer which is also my first car. I will drive it to the end of its COE life and at that point in time, then decide if I can afford to maintain a car in Singapore. If vehicle ownership costs (including maintenance) get too high, I will have to turn to public transport. 

 

To watch the full video of the episode, view here.

 

For more information, visit the Talking Point’s website or LIKE their Facebook page.

Cheryl Tay

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Singapore’s only female full-time motoring and motorsports photojournalist. Independent automotive consultant and prominent local motorsports personality Cheryl Tay is uniquely passionate about all things cars and motorsports. She also has a strong passion to share her interest and knowledge, hence having a dream to become the ‘Oprah Winfrey of cars and motorsports’ and create a multimedia platform for her sharing. - A female in a male-dominated world, Cheryl Tay is Singapore’s only female full-time motoring journalist and motorsports blogger and she regularly writes for prominent titles in Singapore, Asia and internationally. (See full list of titles that Cheryl Tay writes for here.)

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