Follow by Email

Sunday, July 29, 2012

‘Why COE system is outdated and needs to be relooked’

Does the Certificate Of Entitlement (COE) system still achieve its objectives or does it need to be reviewed in today's context?

From August 2012, the number of vehicles allocated for COE quota will increase by no more than 1 per cent per annum and no more than 0.5 per cent per annum from February 2013 through to January 2015.

Initially, the cut was to be from 1.5 per cent straight down to 0.5 per cent from next month.

Overall COE supply will be cut and public anticipation includes a rise in the already high COE prices.

We each have our own opinions but for me, I feel that the COE system serves its purpose in many ways. In others, it's outdated and some components can be reviewed.

Here what's wrong with the COE system:

1) Favours the wealthy

COEs are allocated based on a person's ability to pay rather than his/her needs.

The auction-style system favours 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 demand-driven high COE prices.

The COE system has made cars a luxury good and COEs are going to the rich rather than to those who may really need it.

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 engine size and cars of smaller engine capacities are supposed to be cheaper. But 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) May lead to bad driving behaviour

It encourages a "I want more" or "Must have car" thinking.

For example, COE for large cars in December 1994 was S$110,500.

If adjusted for inflation, it will be much higher than today. It is people's expectations of their needs that have changed.

Also, it can lead to really ugly driving behaviour where drivers think they own the road simply because of the high prices paid to obtain their cars.

5) Drastic changes in COE prices every fortnight cause instability

This leaves little room for prediction and destabilises automotive-related businesses. For example, the aftermarket car segment follows the cycles of the COE prices.

When 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 may be 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) No vintage car scene 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. (Another can of worms there.)

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

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

- 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.

Let's not forget 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.

There is also the influx of population that has not been matched by a similar rise in road capacity. There are only so many roads Singapore can build to cater to the increasing population so population management must be looked at as well.

In conclusion, the COE system does not need to be scrapped totally, but there are some policies which warrant review.

Another related issue that needs reviewing is vehicle usage, which will help with vehicle growth as well.

Traffic jams 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, but 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 happens to be 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.

Passionate about cars and motorsports, Cheryl Tay is a familiar face in prominent local, regional as well as international automotive titles. More of her at

No comments: