http://www.businesstimes.com.sg/prem...egory-20130910

Published September 10, 2013

Posh cars driven out of Category A

Engine power criterion may win Cat A back for mass market brands

By Nisha Ramchandani [email protected]


[SINGAPORE] The gap between small car and big car premiums for certificates of entitlement (COEs) could widen once again as changes are afoot to tighten the small car category, effectively weeding out most premium models.

Minister for Transport Lui Tuck Yew yesterday announced that the Land Transport Authority (LTA) will retain the existing engine capacity criterion for Category A (1,600 cc or less) but will include an additional criterion limiting engine power to 130 brake horsepower (bhp), or 97 kilowatts.

This means that car models with bhp exceeding 130 such as the BMW 118i, the Mazda RX8 and the Mercedes-Benz C180 will soon be bumped into the big car category, even with an engine size of under 1,600cc.

To give car buyers and dealers enough time to adapt, the new categorisation will apply to COEs from the first open bidding exercise in February 2014 onwards, a point where an uptrend in the number of deregistrations is expected.

As a result, Cat A will likely see fluctuations in premiums before the new regulation kicks in as some buyers rush in while others sit on the sidelines to see how the market reacts. On top of that, dealers will need to maximise sales for affected models during this window.

While Cat A was originally meant to cater to mass market brands, luxury brands have been creeping into the category in recent years as car manufacturers roll out new models with smaller engines.

According to LTA, nearly half of all cars in Cat A would have been pushed into Cat B (or cars above 1,600cc) had the additional engine power criterion been implemented for vehicle registrations last year.

"Over the next few months, there may be additional buyer interest in the models which will be reclassified next year," said Colin Yong, public relations manager for the Volkswagen Group.

He went on to add: "We will further refine our model line-up in the coming months to offer customers attractive choices in both COE categories."

The VW group will also examine how popular models that are going to be reclassified should be offered to customers beyond next February, in terms of equipment level and the like.

Vivek Vaidya, vice-president (Asia Pacific) of Frost & Sullivan's automotive practice, reckons that there could be some inter-brand shift as car buyers could opt to purchase luxury models before they are shifted to the big car category.

Once the new rules are applied, Mr Vaidya foresees a drop in Cat A premiums by 10-15 per cent while Cat B premiums are likely to remain around current levels.

"Cat B will start reflecting actual premiums for a luxury make," he said.

In the most recent bidding exercise last week, the COE premium for Cat A hit $77,304, surpassing the $77,100 registered by Cat B.

The changes to the COE framework come after a recent public consultation exercise carried out by LTA where suggestions such as categorising cars by open market value (OMV) and a multiple car ownership surcharge were mooted.

However, at a briefing yesterday morning, LTA stressed that OMV would not be a practical factor since OMV can vary "quite significantly" due to model specifications and foreign exchange rates. This could cause confusion as the same model could wind up in both Cat A and Cat B at different times. Under the new categorisation which includes engine power, over 90 per cent of car models in Cat A have an OMV of under $20,000.

LTA is also studying how to smoothen out the COE supply, which is linked to the number of deregistrations, to avoid a feast-and- famine situation.

"I would like to smoothen out the fluctuations we see over a 10-year period," said Mr Lui, speaking to the media yesterday during a visit to LTA's Vehicle Transit Licensing Office. "The best way to do it, I believe, is to see whether we can save some of the COEs in the years going forward when we have more COEs being introduced as a result of deregistration for the period 10 years hence, when the number of COEs will go down."

The government will also continue to invest heavily in improving the public transportation system.

Meanwhile, other suggestions raised during the consultation exercise such as banning car dealers from bidding for COEs or shifting from the current bidding system to a pay-as-you-bid system - said to be less efficient - will not be implemented.

Nor will multiple car owners be slapped with a levy, LTA said. Feedback from the exercise highlighted that a surcharge could be easily skirted, such as by registering the vehicle under a relative's name.

Instead, it will leverage on other measures outside of the COE system, such as tiered vehicle taxes, to tackle social inequity.