Most premium models to be taken out of Cat A

1. As announced today by the Minister for Transport, Mr Lui Tuck Yew, the Land Transport Authority (LTA) has completed the public consultation on possible refinements to the Certificate of Entitlement (COE) system to better ensure some element of social equity in car ownership.

2. After careful consideration, LTA will retain the existing criterion for Category (Cat) A that the engine capacity of the car should not exceed 1,600 cylinder capacity (cc), and add a new criterion that the engine power of the car should not exceed 97 kilowatts (kW) (equivalent to about 130 brake horsepower (bhp)). (Please refer to Annex A for more information on the proposed refinements to the COE system.)

3. LTA will not implement a surcharge on multiple car ownership, in view of concerns over its effectiveness and possible impact on larger households.

Fundamental principles of the COE framework are sound

4. The fundamental principles of the COE framework remain sound. The public consultation exercise showed that Singaporeans too, understand the need for car ownership controls, and that car ownership is not in the same category as housing, health or education, which are basic necessities. In fact, some commented that the COE system is fundamentally sound and any changes should not detract from its core purpose of managing the vehicle population.

5. Nevertheless, over 80% of online survey respondents felt that the current COE categorisation criteria should be changed to better retain the original purpose of Cat A being for mass-market cars, in view of the rising proportion of premium cars appearing in Cat A in recent years.

New categorisation criteria for Category A and B cars

6. A new set of categorisation criteria to better delineate mass market from premium cars will be introduced. The new categorisation will retain the existing Cat A criterion that the engine capacity of the car should not exceed 1,600cc for Cat A, and add a new criterion that the engine power of the car should not exceed 97kW (equivalent to about 130 bhp). Had this additional engine power criterion been applied to the 2012 vehicle registrations, almost 50% of cars in Cat A would have moved into Cat B. (Please refer to Annex B1 for the list of Cat A car models registered in 2012 that would have been moved to Cat B under the new criteria, and Annex B2 and Annex B3 for the list of car models in Cat A and Cat B respectively under the new criteria.)

7. LTA acknowledges that many who were consulted favoured cars to be categorised based on their Open Market Value (OMV). However, it is not practical to use the OMV of a car model for categorisation as OMV can fluctuate quite significantly for different batches of the same car, due to variations in exchange rates and car model specifications. This means that the same car model can end up in Cat A and Cat B at different times.

8. Engine capacity had been a good proxy for the value of a car until recent years. The new twin criteria of engine capacity and engine power will be an improvement as a proxy for the value of a car, compared to the single criterion, while giving buyers certainty over the COE category of the car model they are intending to purchase. With the new criteria, more than 90% of the car models in Cat A will have an OMV of less than $20,000, which was the OMV threshold for Cat A/B most respondents preferred.

9. To keep pace with market trends and technological improvements, LTA will review the criteria every few years and consider if adjustments are necessary.

10. To give car buyers and the industry lead time to adjust, the change will only be implemented for all cars registered using COEs obtained from the February 2014 first open bidding exercise.

Mixed views on multiple car ownership surcharge impossible to implement effectively

11. Today, there are other measures outside the COE system that address social equity in car ownership. For example, premium car buyers pay significantly more than buyers of mass-market cars through a tiered Additional Registration Fee and higher road tax.

12. Although imposing a further levy such as a multiple car ownership surcharge was a popular suggestion in the online survey, subsequent focus group discussions found no agreement on how the surcharge should be designed. Most agreed that such a surcharge would be easy to circumvent and extremely difficult to enforce, and could also unnecessarily penalise some groups (e.g. those in multi-generation households). Some were also concerned about the underlying principle of whether such a measure is fair, and the signal that it sends against our meritocratic system.

13. LTA will therefore not implement a multiple car ownership surcharge given the varied concerns and the difficulty of implementing such a surcharge effectively.

Other suggestions

Pay-As-You-Bid (PAYB) system

14. Another common suggestion was a PAYB¹ auction system, which is one we have periodically received over the years. The argument is that it will result in more conservative bidding and therefore lower COE premiums.

15. We have consulted experts in auction theory on this suggestion. They explained that our current open bidding system does not encourage aggressive bidding in fact, it generally incentivises people to bid the true amount that they are willing to pay. From what we observe of the bids, very few bids are substantially above the final COE price. This suggests that bidders monitor the prices and are cautious about over-bidding.

16. According to experts in auction theory, an open PAYB system is likely to lead to a similar outcome. Industry watchers also caution that a PAYB system may not necessarily lead to lower COE prices overall no matter how risk-averse buyers are, as prices are ultimately driven by demand. (Please refer to Annex C for an explanation of the current and PAYB auction systems.)

17. Thus, LTA will not implement a PAYB system.

Ban motor dealers from COE bidding

18. Public feedback on calls to ban motor dealers from bidding for COEs has been mixed. While there were many who proposed to ban dealers from bidding, nearly half of the respondents to an earlier LTA survey were against doing so³.

19. A number of people noted that the COE bid price is ultimately dependent on buyers? willingness-to-pay. Car buyers who supported allowing dealers to bid for COEs also said that they preferred the dealers to handle all the paperwork for registration, trading in, financing and insurance. Others felt it would be impossible to prevent people from getting their dealers to bid for them by proxy. Banning dealers from bidding could also result in buyers having to find separate financing for their COEs.

20. On balance, to preserve the option that buyers have today of bidding on their own or having dealers bid for them, LTA will not ban dealers from bidding for COEs.

Smoothening the supply of COEs

21. There were also suggestions made about smoothening COE supply, which are not new. LTA will continue to study if there is a practical way of putting aside some of the upswing in supply expected in the next few years, and to save them for the future when the supply of COEs turns downwards again.

Continued investments in public transport

22. Given Singapore?s scarce land resources, it is not possible for everyone to own a car. The Government will continue to invest heavily in improving the public transport experience, as public transport is the more sustainable mode of travel, as well as improve taxi services, to provide Singaporeans with a high degree of mobility.