The Straits Times
Apr 21, 2012
Luxury cars nudging cheaper cars off road
Upmarket marques now make up 45% of sales in up-to-1,600cc category
By Christopher Tan
Premium marques are crowding out the bread-and-butter brands in the small cars category as certificate of entitlement (COE) prices zoom north.
According to the Motor Traders Association (MTA), premium and luxury brands made up 45 per cent of sales in the up-to-1,600cc segment in the first quarter.
In the same period in 2007, they had a negligible 0.3 per cent slice of the segment.
COE prices for the small cars category, seen as the category for the most affordable cars in Singapore, are now hovering above $60,000, compared with $5,000 five years ago.
Premiums have soared because the supply of COEs - which buyers need to secure before they can own a vehicle - has plunged, from more than 100,000 in 2007 to no more than 25,000 this year.
Supply has shrunk because fewer cars are being scrapped and because the annual allowable vehicle population growth rate has been cut.
With this development, premium cars like Mercedes-Benz, BMW and Volkswagen - among the first to downsize their engines following the 2007 oil shock and 2008 financial crisis - are charging ahead at the expense of historical staples such as Toyota, Nissan and Hyundai.
Sellers of upmarket cars have fatter margins to outbid rivals for COEs. 'Very soon, this segment will be for only rich people and rich companies like taxi operators,' quipped a motor trader.
The up-to-1,600cc segment has shrunk on the whole too. In 2007, it accounted for 52.5 per cent of total car sales. Today, it has slipped to 46.2 per cent, according to MTA data.
Buyers and sellers of bigger and more luxurious cars are also outbidding the others for Open COEs, which can be used for any vehicle type but end up almost exclusively for bigger cars.
The Open COE premium is now $92,000, compared with around $12,000 in the first quarter of 2007.
Despite the stratospheric prices, well-heeled buyers are still flocking to showrooms. Last weekend, premium marque dealerships collected substantially more orders than usual, with models like the BMW 3-Series and Mercedes-Benz C-Class leading the way.
A 1.6-litre 3-Series from BMW due to arrive late this year will expand the premium brands' presence in the bread-and-butter segment and drive up COE prices further.
'People should stop buying cars now, then COEs will start to fall,' said the boss of a continental dealership who did not want to be named. 'I sell cars for a living. I should not be saying this, but please, advise people to hold back.'
Industry observers said it is no longer clear if high COE prices are fuelling the demand for premium cars - because consumers do not find it worthwhile to use an expensive COE for a cheap car - or the demand for upmarket brands is driving up COE prices.
But one thing is for sure: Car prices are near record levels. A Toyota Corolla 1.6 now costs $123,000 - a whisker from its all-time high of $130,000 in 1994. That was when the premium for cars up to 1,600cc was below $60,000 but car registration taxes amounted to around 200 per cent of the open market value (OMV), or roughly the cost of a car before taxes.
Today, these taxes are 120 per cent of a car's OMV.
The sky-high prices are driving mass market buyers into a corner. Retired engineer Lee Kok Meng, 55, said he is looking to change his 81/2-year-old Toyota Camry, 'but it looks like prices are beyond my reach now'.
'I have a year and a half to consider whether to continue driving or take public transport,' he added, referring to the time left before the COE of his car reaches the end of its mandatory lifespan. 'And I think I am not alone in this.'
He said the COE system favours wealthier buyers, and it would be fairer to peg actual premiums payable to the open market value of each car so as to create 'a more level playing field'.
Sellers of budget brands have also taken a beating. The Chinese brands have almost ground to a halt, with Geely having exited the market.
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