COE woes : Just admit the policy was flawed

Sometimes, print media doesn’t show a good comparison of intellectual debates when it occurs on different days. Most people who don’t read newspapers regularly would not have bothered about these two letters that appeared last Wed and today in the Straits Times, regarding the spike in COE (Certificate of Entitlement for vehicles) that saw the paper slips soaring to S$36,089 for cars above 1600cc.

That’s why I’ve pasted these two ST Forum letters together:

Mar 31, 2010 – COE price spike: Govt not entirely right

SECOND Minister for Transport Lim Hwee Hua’s view (‘COE spikes not due to formula change: Lim Hwee Hua’; Monday), that the Government’s new formula to determine the number of replacement COEs was unconnected to the surge in prices of certificates of entitlement in the latest exercise, bears scrutiny.

The change to the new formula coincided with the exercise. The Straits Times also indicated bigger-than-expected cuts in COE supply after the new formula was announced by Transport Minister Raymond Lim (‘Big drop in COEs ahead’, March 12).

While Mrs Lim is right in pointing out that the number of COEs allocated was a function of the number of cars deregistered, it is equally true that the function was changed. Certainly, other factors such as the economic recovery led to the price spike. But it is unfair to suggest that the Government was entirely not responsible.

First, there is no objective, scientific way to determine whether the new formula could not have caused the sharp spike in COE prices. Second, the policy was formulated by the Government.

A more considered response – which acknowledges that the COE formula was one of several factors that led to the rise in COE prices – would have been more appropriate.

A more measured response would have encouraged public discourse rather than give the impression that public feedback was unnecessary because the Government is right.

Tan Jiaqi


Apr 4, 2010 – Old formula doesn’t mean more COEs

I REFER to Mr Tan Jiaqi’s letter, ‘COE price hike: Govt not entirely right’, on Wednesday.

Mr Tan asserts that the new formula for certificate of entitlement (COE) quota, which comes into effect this month, was one reason for the rise in COE prices in the recent bidding exercise last month.

Both the old and new COE formulas aim to replace deregistered vehicles through the COE supply. Under the old formula, the number of vehicles deregistered is based on projections derived from historical trends. The new methodology merely does away with the need to project deregistrations by basing the number of replacement COEs on the actual number of vehicles taken off the road in the most recent six-month period. In doing so, the new formula provides a COE supply that is more responsive to changes in vehicle deregistration patterns, and is not subject to errors in projection.

The change in formula in itself does not result in a significant change in COE quotas. If there is a trend of more vehicles being deregistered, then both the new and old formulas would provide for a higher COE quota. Likewise, if there are fewer vehicles being deregistered, the COE quota will fall regardless of the formula used.

The cut in the COE quota announced last month was a direct result of there being fewer vehicle registrations recently. It is wrong to conclude that if the Government had kept to the old formula, there would have been more COEs.

In its review of the COE formula, the Land Transport Authority sought the views of the various motor trading associations, which were generally supportive of the proposal. In deciding on the change, the Government took into account their feedback, to use a six-month recycling period to allow the industry time to adjust.

Phua Hooi Boon
Director (Land Transport Division)
Ministry of Transport

I highlighted the sentence above in red because anyone in Singapore who owns a car, or wants to own one, should rightly be astounded by Mr (or is it Ms? Not sure about gender here…you’d never know these days) Phua’s response.

Let’s get some facts clear:

1. The COE system was designed to control the number of cars on the roads in our tiny island. According to LTA’s website:

The Vehicle Quota System was implemented on 1 May 1990. Under this system, LTA determines the number of new vehicles allowed for registration while the market determines the price of owning a vehicle.

2. Over the years, the vehicle population has shot up faster than the network of roads can absorb. According to ST, from 2005 to 2008, Singapore’s vehicle population growth rate ranged from 3.8 per cent to 6.5 per cent – above the stipulated 3 per cent ceiling (see story below).

This has led to frequent traffic jams and congestion around many parts of the island during peak hours. Even during non-peak hours, a traffic accident on one highway like AYE can spread to other highways like PIE due to the small road network size, and width of the roads.

3. This is obviously because the car quota system hasn’t worked. Why hasn’t it worked? Because the old formula was based on projections (or rather, assumptions) of how many cars would be deregistered over a fixed period. This is obviously flawed because car purchases can shoot up due to introductions of new models alone, which is something the LTA doesn’t keep track of, or a booming economy.

4. The new formula is based on actual number of registrations and so would obviously work better to keep the car population in check because the trending can then be controlled by the Govt. rather than irrational market forces.

Thus, the change in formula is designed to drive a significant change in the COE quota – one that keeps our vehicle population growth in check.

So why is LTA not able to just admit that the old formula was wrong (ie. LTA was wrong)? Their mistakes and assumptions have led to really unpleasant traffic situations today. Look, the issue is not about COE pricing in itself – there’s really no other logical way to keep vehicle numbers down apart from making it unaffordable to most people.

Even if it costs $500,000 to own a Toyota Altis, the goal of the COE system would have been achieved if the car population was kept in check as a result (and even many rich guys and top civil servants have to squeeze in the MRT with us).

The issue is that LTA’s poorly thought-out policies created the traffic situation we’re in today – despite all the expensive implementations of ERP, COE and what not –  and yet they are quick to distance themselves from it when they are questioned by a diplomatically-written letter.

Or maybe they didn’t get the point of Tan Jiaqi’s original letter.

These days, the Govt is trying to reach out to more people using social media or new online platforms. I say that’s all a waste of time when you can’t even acknowledge the facts on a public issue and take responsibility for your older policies. It’s exasperating to read such official responses and that’s not the way to take constructive feedback from the public.

Anyway, thank goodness for straight-talking, intelligent journalists who tell it like it is. Have a read of Christopher Tan’s column from this week on the COE issue.

Mar 30, 2010 – Steep COE prices may not be the best way to keep cars off the road

By Christopher Tan

IT IS easy to forget the core purpose of the certificate of entitlement (COE) system, with feelings boiling over following last week’s unprecedented increases in premiums.

The system, implemented in 1990, has one purpose and one purpose only: to control vehicle population growth so Singapore does not become a giant carpark.

The system has been fine-tuned over the years, with the latest tweak announced two weeks ago. With the change, the supply of COEs will be determined every six months, with each allotment determined largely by the number of vehicles taken off the road in the preceding six-month period.

The Government also took the opportunity to correct an oversupply of certificates that persisted in the previous system, which was based on forecast deregistration numbers.

The oversupply resulted in roads being noticeably crowded in recent years.

From 2005 to 2008, Singapore’s vehicle population growth rate ranged from 3.8 per cent to 6.5 per cent – above the stipulated 3 per cent ceiling.

The result? An almost 25 per cent increase in the vehicle population to more than 930,000 in the past five years.

The Land Transport Authority (LTA) has tried to remedy the oversupply by trimming recent COE supplies. Last September, it announced the supply from October to March this year would be 16 per cent smaller than the previous six-month period’s, which was itself 24 per cent down from the previous quota. This was on top of a halving of the allowable annual growth rate to 1.5 per cent.

It did not quite work. Last year, the vehicle population rose by 3.4 per cent – more than double the new cap.
Then came the sledgehammer two weeks ago. With the new supply formula, as well as the adjustment for oversupply, the new COE quota kicking in next month will be nearly 30 per cent smaller.

The surgery is the worst for the category of cars up to 1,600cc. This mainstay of car buyers will see a 40 per cent shrinkage.

The car market reacted to the new supply the way most “free” markets react in such situations. It panicked.

Frenzied bidding drove COE premiums through the roof at last week’s tender – the last before the new quota period. Car premiums ended about $10,000 higher. With speculators fuelling the frenzy, the Open category, which is a proxy for car buyers, chalked up the biggest gain of $14,000.

In percentage terms, the increases were the highest since the COE system began 20 years ago, barring the recoveries from isolated freak results. As a result, car prices soared – by more than $20,000 in some cases.

Such increases are, to say the least, undesirable. They are a shock to the system, and change overnight the landscape for car buyers and sellers alike. Other than the banks and finance companies, no one is happy. But if this is the price for maintaining a sustainable vehicle population and relatively unclogged roads, no thinking person will object.

But is COE the only tool to achieve this end? Obviously, it is not. We have electronic road pricing (ERP).
Introduced in 1998, ERP targets the real cause of congestion: indiscriminate car usage in high-density areas during peak hours.

Has ERP been utilised to its full potential? In my opinion, no.

More gantries can be erected and switched on. Rates can be higher. Better still, roll out the distance-based charging system the LTA has been studying for a decade now.

Admittedly, ERP may be more politically unpalatable than COE. The latter is often forgotten once the consumer pays for the car. In fact, even the recent price spikes will become “painless” when amortised over the years through monthly instalments.

ERP, on the other hand, is a daily reminder of the cost of driving a car. With every beep of the reader, every dollar amount flashed, the driver feels the pinch.

And so it should be. ERP is designed to remind drivers of their contribution to congestion. It works, too, judging by the cases of luxury cars stopping by road shoulders to wait for gantries to be switched off.

But it is not working well enough. On roads such as the Central Expressway, East Coast Parkway and Pan-Island Expressway, traffic is heavy even with ERP. Ditto the city centre.

In the case of the latter, there is another more effective tool to curb usage: parking charges. While city parking charges have gone back up to pre-recessionary levels, they are still relatively low compared with those in many developed cities.

With higher usage charges, Singapore can afford to have more people owning cars, a key aspiration in all affluent societies. When ERP was introduced, the Government released extra COEs into the system (that is, over and above the number of COEs pegged to vehicles taken off the road).

The same principle can apply again. Expand ERP and release more COEs. Otherwise, rising car prices will persuade more people to keep their current cars, which in turn will mean fewer deregistrations in the future.

And that can only mean continued COE quota contractions ahead.

With Singapore’s growing population, this could eventually lead to six-figure premiums, although industry players say that is unlikely now.

The last piece of the puzzle is, of course, a speedy, well-connected and comfortable public transport system. If people are to drive less into the city, they must have access to alternatives that are nearly as viable as the car.

Otherwise, they will continue to drive, and gripe about high charges.

4 Replies to “COE woes : Just admit the policy was flawed”

  1. Off course it is the most flawed policy of the PAP govt in allowing the motor traders to bid for a COE on behalf of aspiring car owners. Whose interest do you really think that our LTA or these motor traders will protect first ?

    If it is an honest enough system, the COE should be registered in the name of the person bidding for it and should not be transferable. If it is meant to be transferred, doesn’t it mean that the bidder does not need that COE for himself/herself ?

    To begin with, LTA is the main beneficiary when COE prices increases and how can be expect them to tweak the system against their own interests. The whole COE system is just a scam at milking more money out of Singaporeans. Our National coffers just needed re-filling from the recent massive losses that our unique one-and-only-one available CEO has caused.

    Should we give our PAP govt a round of applause for causing so much misery to car owners, particularly those in the lower income category. Our PAP govt just wouldn’t give a damn even if you need the car to eke out a living.

  2. I got a question when the hell is the coe gonna be gone I’m kinda sad that when I get a licence I can’t drive a car or ride a motorbike at all due to the increase in coe prices while all my friends overseas are driving old cars like the 1979 Honda accord hatchback :'( why can’t we voice out augh

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