Re: COE Prediction
How to break the illusion on used-car prices
How to break the illusion on used-car prices
By Christopher Tan
Second-hand car sales grow as certificate of entitlement (COE) quotas shrivel – that is the reality of Singapore's regulated car market.
In the first quarter of this year, 15,441 cars changed owners – more than double the number of new cars sold. At this rate, the number of used-car transactions this year is likely to hit a 10-year high.
The trend is expected to continue for another two years or so, before a sizeable cohort of cars registered between 2003 and 2007 start reaching 10 years of age from 2013.
Most of these cars will then be scrapped, reversing the downward spiral of COE supply witnessed from 2008.
From the numbers, it would seem that used cars are a viable alternative to new cars, whose prices have risen to levels beyond the reach of many salaried buyers.
For some new models, prices have practically doubled from five years ago. In that light, going second-hand seems logical.
But are used cars really good value? Yes, if their selling prices had not risen in tandem with new-car prices. That, of course, is wishful thinking.
LOOK CLOSER
Used car dealers are shrewd business people who will adjust their prices in line with new-car rates. In many cases, they overdo it and their products become quite unattractive.
Take the example of an 18-month-old, high-spec Lexus RX350 posted for sale early last month, with an asking price of about $176,000. If you compared that only to the price of the same model (new, of course) posted then by Borneo Motors, you might think that the used unit is a decent deal, being $64,000 cheaper than a new $240,000 RX350.
But if you looked closer, you would change your mind. The second-hand Lex was registered with a $16,801 COE.
The COE for the same car last month was $56,000. If you deduct the difference in COEs, the 11/2-year-old RX is merely $24,800 cheaper than a new one. Not so attractive now, right? Especially when you consider that the car was priced around $175,000 in 2009.
COE MATTERS
What has COE value got to do with anything? After all, the $16,801 premium is history.
Well, COE value has a bearing on the scrap value of your car.
If you decided to scrap your second-hand car, you would get about $8,400 for the remaining COE value. If you did the same with the new car, you would get a COE rebate of $28,000.
By conservative estimates, the 18-month-old RX should be $32,800 cheaper than the new car, after factoring in the difference in COE values.
Take another example: a three-year-old Chevrolet Captiva, advertised at $75,800 on the same portal. It was registered with a $17,113 COE. The latest Captiva is priced at $124,000, with a $56,000 COE. Difference in prices: $48,200. Difference in COE value: about $38,900.
After discounting the COE difference, the used Chevy SUV is just $9,300 cheaper. Hardly worth the trouble, especially when the new model comes with a host of improvements.
Now, you may say those used-car rates were probably just asking prices, and that you could probably bargain them down by a couple of thousand dollars. True. But you could also do the same for the new cars.
Having said that, used cars are still undeniably lighter on the pocket.
You just have to look hard to find them, and bargain even harder to bag a good deal.
WHAT MAKES USED CARS MORE POPULAR
For most consumer products, the more famous and coveted a brand is, the more sought after its used goods are.
It is more or less the same for second-hand cars, but there are more complex reasons for their popularity.
If you examine the top-10-selling makes in the used-car market in the first quarter, you will see that the list is more or less aligned with the long-term popularity of each brand.
Despite the growing acceptance of German marques in recent years, the Japanese ones still dominate the ranks of the secondary market. That is because Japanese cars have long been the preferred choice of motorists in Singapore.
Transactions of the best-selling used cars usually make up between 2.1 and 2.9 per cent of those for their respective populations (see table).
There are two anomalies, though. BMW's used-car transactions made up 4.4 per cent of those for its population, and Subaru's made up 3.5 per cent, significantly higher than the prevailing percentages for the others.
Why is this so? Based on basic market principles, one reason for a product's popularity is price. Perhaps the resale prices of BMW and Subaru are relatively lower than those of the rest, that is, used-car rates in relation to new-car prices.
WHAT MAKES USED CARS MORE POPULAR
For most consumer products, the more famous and coveted a brand is, the more sought after its used goods are.
It is more or less the same for second-hand cars, but there are more complex reasons for their popularity.
If you examine the top-10-selling makes in the used-car market in the first quarter, you will see that the list is more or less aligned with the long-term popularity of each brand.
Despite the growing acceptance of German marques in recent years, the Japanese ones still dominate the ranks of the secondary market. That is because Japanese cars have long been the preferred choice of motorists in Singapore.
Transactions of the best-selling used cars usually make up between 2.1 and 2.9 per cent of those for their respective populations (see table).
There are two anomalies, though. BMW's used-car transactions made up 4.4 per cent of those for its population, and Subaru's made up 3.5 per cent, significantly higher than the prevailing percentages for the others.
Why is this so? Based on basic market principles, one reason for a product's popularity is price. Perhaps the resale prices of BMW and Subaru are relatively lower than those of the rest, that is, used-car rates in relation to new-car prices.