Understanding the prices of cars in Singapore might require one to have a Bachelor of Science in Car Ownership; after all, there’s COE, there’s ARF…and what’s even more confusing is that when one renews COE, the PARF is gone (wait, what!?).
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But one thing is certain: despite the chim-ness, prices of cars are still determined by demand and supply.
For the uninitiated, the concept is simple: just think back on the days when bubble teas took Singapore by storm. Initially, when there were just a few bubble tea shops in Singapore, prices could go up to $4 a cup.
After a few months, when bubble tea shops were all within an arm’s length from each other, each cup went all the way down to even $1 a cup.
The formula is easy: more supply (more bubble tea shops) with the same demand = lower price.
Got it so far? Okay, now let’s recreate this scenario, this time substituting bubble tea with…cars.
Earlier this month, sgcarmart, the to-go for people wanting to buy a second-hand car, post this.
Mazda 3, the model that’s used by many Uber (RIP, Uber) drivers, were being sold at a lower price despite the low mileage. With mileage of less than 50 km, these are essentially new cars being parked for a year.
Not sure if the battery still have juice, but the fact derived from this sale is obvious.
It’s alleged that these cars are from Lion City Rental, the rental company by Uber. The rental company was due to be sold to ComfortDelgro but Uber’s sudden exit had left the company in limbo.
Well, sort of.
Putting the car in a car park loses money: not only does it incur parking costs and the opportunity costs, the monthly instalments still have to be paid. It’s therefore not a surprise to see them selling the cars, even if it’s at a loss.
Okay, so that means cheaper second-hand cars are flooding the market. Pretty sure this isn’t the only one (read on and you’ll understand), but here’s something even more interesting: prices of cars should drop in 2016.
There Should Have been “Cheaper” Cars in 2016
You see, a COE expires every ten years. In 2006, the average COE price is at $11,187 – that makes car much more affordable for many. To add on, the number of COEs available was high at about 59K in 2006, lowering the prices even more. Cars that cost $100,000 now could cost just $50,000 back then.
From then on, prices of car increase as the COE quota drop.
In 2016, ten years after 2006, some people who bought the car at a lower price shouldn’t have renewed the COE as the prices has since doubled. That means more COEs would be available as cars are being de-registered (the number of COE that’s available depends on how many cars were de-registered).
And the numbers show: in 2015, the COE quota (no. of COEs available) increases to 32,867, compared to 2014 when the quota is 12,230.
By 2016, over 48K COEs were available.
I know it’s a little chim, but all you need to take away from this is simple: there are more COEs in 2016, so prices should theoretically drop.
But it didn’t.
The average price of COEs in 2014 is $67K, and the average prices of COEs in 2016 is $49K. That’s about 27% less.
Whereas the number of COEs available in 2014 is 12K and in 2016, it’s 48K. That’s a 75% increase.
75% more COEs and yet only a drop of 27% in price?
Is there something wrong with the demand and supply lessons taught by our econs profs?
Well, no. Because car rental companies came in.
Car rental companies bought a lot of cars for private hire. In a Straits Times report in 2016, it’s alleged that Uber submitted over 800 bids for a COE in a tender, accounting for 11% of the total bids for cars.
That’s a lot of cars bought in just one COE bidding.
And so, the “COE price correction” that everyone is hoping for since 2006 did not occur.
But These Cars Might Not be Used
Now, with Uber gone from the market, it makes everything more complicated.
These cars that were bought at a high price (at the expense of people who’re looking for a price correction) are now flooding the second-hand car market. In other words, there are more cars than private hire drivers.
And finally, the demand-and-supply formula is put in use again: with more second-hand cars being sold at a lower price, it would affect the entire market, reducing the prices of cars.
One year ago, finding a rental car at $35 a day is like finding a chicken rice that’s still sold at $1.50. Now, it’s a reality.
Do you know that car rental companies are renting out cars at less than $1,100? That’s like $35 per day. Just check out Carousell and you’ll get the idea.
Taxi Company is Back
There’s yet another reason, though: the private hire license test.
By 30 June 2018, which is about a month from now, all private hire drivers would have to have taken the test. Back then, they were given one year to take the test.
According to LTA, out of the 73,000 PHV drivers, 34,000 of them have not passed the test.
With the new framework, these 34,000 PHV drivers cannot drive for private hire after 30 June 2018.
I’ve spoken to a car rental company salesperson, who wanted to remain anonymous, on how it has affected him. He said that it’s direful. “Those uncles who converted to PHV last year cannot pass the test, so they’re going back to taxis after 30 June. Many cars are being returned after the contract ends.”
A Grab driver told me, during a Grab ride, that he was encouraged to join Grab from ComfortDelGro more than six months ago due to the “crazily high incentives”, but would be looking for a new job after his car rental contract ends.
But don’t take my word for it.
It’s revealed that for the first time since 18 months, ComfortDelGro is buying new vehicles. due to higher demand That would have validated what I’ve written: drivers are going back to taxis, whether due to the private hire license test or otherwise.
This could ultimately mean one thing: prices of private cars will drop
Whether it’s new cars or second-hand cars, they can’t break free from the law of demand-and-supply. Unless 2016 repeated itself, in which car rental companies bought cars like they cost nothing just to ramp up their fleet for the private-hire industry, the price correction that should take price in 2016 should take place in July 2018.
So, the honeymoon period of cheap private hire cars might be over; now, it’s the honeymoon for cheap cars.
But heck, cars were never cheap. It’s just slightly cheaper.
Then again, for people (okay, I admit I’m one of them) who were waiting for the price correction in 2016: it’s finally here.
Do come back to the Goody Feed app tomorrow for more commentary!
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