COE for beginners

COE for beginners

BEFORE you buy a car in Singapore, you need to have a Certificate of Entitlement (COE) to do so.

And because there are various ways of securing a COE, it means the car buyer can choose between different ways to buy a car.

You can go with any of the packages offered by car dealers, or obtain a COE yourself. And it can mean that different buyers pay different prices for the same car.

These are the main choices for buyers.

1. Get your new car right away

MOST dealers have an 'immediate delivery' deal, which means they will use an Open Category COE, rather than a COE from the car's rightful category.

This means that if there's a car available in your choice of colour, you just sign on the dotted line and get it as soon as the documentation is done and the number plate is ready.

The attraction: No need to wait. And since Open Category COEs are valid for only three months, dealers will sweeten the deal if the expiry date draws near for COEs they have in hand.

The downside: You may collect less of a rebate when you scrap the car. This is because the 'leftover' value of an Open COE will not be based on its price, but on the price of the COE for the car's rightful category, if the latter is lower.

For example, you use a $12,000 Open Category COE to buy a 1.6-litre car when the COE for 1.6-litre cars in the same tender is $5,000. If you scrap the car by the fifth year, you get back $2,500 in unused COE, not half the price of the Open Category COE.

Offers: Practically every dealer has Open COEs for urgent registrations. The deals for cars packaged with an Open COE can be anywhere from among the priciest to the cheapest.

2. Get your new car within six weeks

THE dealer guarantees that he will get you a COE within two tenders - that's normally four weeks, because bidding is done fortnightly.

The attractions: Aside from the Immediate Delivery deal, this is the fastest, surest way to get your car. Also, you get the rightful COE for your car, not an Open Category one. If stock is available, you get your car within six weeks.

The downside: This is pricey. To secure that guaranteed COE, dealers bid more aggressively. Some sales contracts may say that if the seller fails to get the correct-category COE for your car, he will use an Open Category COE instead. If you are not agreeable, tell the dealer from the start.

Offers: Most dealers offer this. If you are buying a high-end car like a Porsche or a Jaguar, this is the default deal.

For mass market cars, the guaranteed deal also comes with the highest rebate level, which matters if the COE price falls. The higher the rebate level, the better your chance of getting some money back if COE prices fall.

3. Wait for the right-price COE

THE dealer offers to keep trying to get you a COE at the price you're prepared to pay. So a package deal may say that the dealer will bid four or six times in successive COE tenders to get you your COE.

The attraction: It is cheaper than other package deals, and that's why this is popular with buyers who are prepared to wait. If COE prices go down, you could save money.

Reputable distributors of top brands will almost always land a COE - even if they tell you there's no guarantee. If all goes well, you get your car within four months, often sooner.

The downside: If the dealer does not get your COE after six bids - and that means three months - things become uncertain. COE prices may stay beyond your reach, and you end up waiting longer. Or, along the way, you may start feeling anxious and agree to fork out more money to top up the price of your package and secure the COE.

Also, some dealers may not start bidding right away as you expect. They do so only in the fourth to sixth rounds. It means you wait. So it may be wise to hold on to your current set of wheels if you choose this deal.

Also, rebate levels tend to be low for multiple bidding packages. So if COE prices fall, this deal does not offer the best money-back promise.

Offers: Dealers of most popular brands offer this package. The premium marques avoid this because their customers mostly do not want to wait. Not all dealers ask buyers to top up the package price if COE prices keep rising. Among them:

Borneo Motors (Toyota), Kah Motor (Honda), Performance Motors (BMW), and high-end marques like Jaguar, Porsche and Bentley. Parallel importer Richburg Motors also does not ask for top-ups.

4. Do it yourself

YOU get yourself a COE, and then shop for your car. Very few buyers - an estimated 1 per cent - do it this way, even though the process is easy enough.

You can bid for a COE at an ATM, as long as you have $10,000 in your bank balance. This method works best for people who do their homework and track COE price changes, and want to make sure they pay the price they are willing to pay.

The attraction: If you are savvy enough, you can land yourself a cheap COE. No worrying over whether the dealer will give you money back if the COE price falls, or ask for a top-up if prices rise. Some people who are not in a hurry keep bidding very low amounts repeatedly and sometimes get lucky when the COE price plunges. It feels like winning a lottery, they say.

The downside: Dealers set different prices for cars sold to buyers with their own COE and those who take one of the package deals. The difference is not a simple matter of deducting the COE price from the package deal price. Sellers of less popular cars are more open to negotiation on this front.

If you are not familiar with COE trends, you might waste time and effort trying to get a COE the DIY way. There is no advantage if COE prices are creeping upwards. It is worthwhile only if you see prices sliding.

Offers: Most dealers will sell you a car if you turn up with your own COE. But don't expect the best price, especially from sellers of popular brands. The reason: They give priority to releasing stock to customers with a package deal.

Before starting on your DIY journey, shop around, check prices and waiting time for delivery. Your COE is valid for six months before it expires.

COE BIDDING PROCESS OPEN AND TRANSPARENT: LTA

THIS is what Land Transport Authority director Maria Choy says about the COE bidding system:

"Vehicle buyers can bid for the COE themselves or buy it as part of a package deal offered by the motor dealer.

"Many vehicle buyers opt for package deals for convenience and also because dealers compete to offer attractive terms and financing arrangements as part of the package.

"If vehicle buyers feel that motor dealers are not offering them a fair package, they can bid for COEs on their own. The COE Open Bidding System was designed specifically to ensure that individuals are not at a disadvantage when they do so.

"There are many avenues to submit a COE bid. DBS/POSB account holders can use the ATMs, while Citibank and UOB customers may use the banks' Internet banking facilities, and Citibank and OCBC customers may go though phone banking.

"The bidding process is open and transparent. Bidders can see the going COE price, number of bids received and the status of their bids through their banks' systems, LTA's OCOE website, one.motoring and Teletext. The prices are adjusted on a real-time basis, according to the bids received.

"If a bidder finds that he has been outbidded, that is, his bid is below the going COE price, he may increase his bid, through LTA?s OCOE website or through the facilities of participating banks.

"Bidders can decide to drop out if they feel that the quota premium is higher than what they are prepared to pay. Unsuccessful bidders receive their deposits in their bank accounts the following day.

"All successful bidders pay a uniform price for the COE, based on the lowest successful bid. Therefore, an individual can bid exactly as high or as low as he wishes, without regretting it later, or accidentally paying too much if he succeeds. This is in contrast to a 'pay-as-you-bid' tender system, in which bidders are more likely to over-estimate the value of the COE, and thus end up over-paying.

"Once a bidder has successfully secured a COE, he can purchase a vehicle from a motor dealer."

COE system kicked off in 1990

NOWHERE else in the world does it work like this. Before you buy a car in Singapore, you have to get yourself a certificate that entitles you to make the purchase.

It is all about controlling the number of cars on the road, so that traffic keeps moving.

Instead of continually raising taxes to discourage vehicle buyers, Singapore sets a quota on the number of vehicles that can be put on the road at any time, and then leaves it to market forces via a fortnightly auction of COEs - certificates of entitlement to buy a vehicle.

Five categories of COEs are available: two for passenger cars, one each for motorcycles and commercial vehicles, and an Open category COE that can be used to buy any vehicle but is mainly used for cars.

Bidding for a COE can be done by motor dealers, or buyers can do it themselves. Nine out of 10 buyers let the motor dealers bid for their COE.

The number of COEs released every fortnight is fixed before the start of a quota year in April. The supply is adjusted in October, if necessary.

From all bids received, the lowest successful bid in a tender is the price everyone in the same category pays.

So if there are 100 COEs available in a category, and bidders make bids from anything between $1 and $50,000, the 100th successful bid from the top becomes the COE price.

Car COEs have ranged from as low as $50 in December 1997 to as high as $110,500 in November 1994. Currently, they hover around $14,000.

This is a history of the scheme:

May 1, 1990: The Government implements the Vehicle Quota or COE System, with the promise of reductions in other car taxes. There were as many as eight categories at first.

Nov 1, 1990: Reduction of the Additional Registration Fee (ARF) for cars, from 175 to 160 per cent of Open Market Value (OMV), or roughly their cost price.

Feb 1, 1991: Further reduction of ARF for cars, from 160 to 150 per cent of OMV

Sept 1, 1991: Car and motorbike COEs are made non-transferable. Commercial vehicle COEs and Open COEs remain transferable.

Feb 20, 1995: Residual value of COE for vehicles registered using Open COEs to be based on COE of the vehicle's rightful category - if it was lower.

Residual value of COE for vehicles deregistered within two years after registration for export is capped at 80 per cent of premium. These are to discourage speculation in Open COEs.

Nov 1, 1995: Introduction of the electronic COE bidding system.

April 1, 1998: ARF for cars reduced further, from 150 to 140 per cent of OMV. Registration fee for cars also reduced from $1,000 to $140.

May 1, 1999: Annual COE supply formula revised. A mid-year adjustment for any huge under or over-supply is also introduced. Also, four car COE categories are merged to become two.

April 1, 2002: Launch of the Open Bidding System, which allows bidders to see the going rate 'live', so they do not bid blindly. Before this, bidders could not see what others were bidding. ARF currently stands at 110 per cent of OMV.

-from Land Transport Authority