COE Bidding Resumes – How Will COE Renewal Price Move?
COE bidding will start again with the first bid on 6th of July, as we move into Phase 2 of Circuit Breaker where we see rules further relaxed and car showrooms allowed to operate again from tomorrow (19th of June 2020).
Many of our customers with upcoming COE renewals are hopeful for a price reduction with the resumption of COE bidding, which will lower PQP for those with renewals after August. Below we analyse what could happen when COE resumes bidding and how it affects August COE renewal PQP. If you wish to know July 2020 COE renewal price, click here.
Circuit Breaker Hurts Biz & COE Prices Too?
And many of them come to their conclusion based on the fact that the economy is not doing well before Covid-19, and even worse now that the CB has caused havoc on consumption, with as many as 8,600 businesses having closed in April 2020.
Overall consumption has suffered from a loss of jobs, but has consumption in cars reduced in the past months or will there be pent up demand built up over the past months rush to the showrooms now that they are allowed to open again?
Also on the minds of those with COE renewal looming, if the price drops, shall I go for 10 years COE renewal instead? I’m getting a discounted price!
This is as summary of COE bidding results in 2020 with the latest result of last COE bid in March highlighted:
COE Price Movement – Supply And Demand Factors
If we look at the simple idea of supply and demand to make a prediction of where this next COE bid is headed, these are some of the possible factors we would look at – not exhaustive – if you can think of any other factor that would affect the movement, we at SG Cash N Cars would be happy to discuss the impact of those too.
Increased COE Quota Supply Coming Into Bidding
With no bidding at all since the months of April 2020, that is a whole three months of unused available COE that is supposed to be released for bidding. This figure of unused COE that is to come into the bidding for all categories (including bikes and commercial vehicles) stands at a sizable 19,490.
According to LTA announcement, these COE will be put into the upcoming biddings and spread out over the next 12 months of 24 bids (each month has two bids), with the first quarter of bids from July to September receiving proportionately more of the total number of COE unused.
6,494 COE (or one third of the unused COE) will go into the next three months of bids and the later 9 months after that receiving the other 12,996 COE.
COE Quantity Available for July 2020
The number of COE available for July will be 8,737. This is an increase of over 33.5% over the last bidding quantity of 6,540 for the month of March 2020.
Directional Pressure on COE: Down
Car Sales During Circuit Breaker
This is the demand side of the COE equation. And so the supply has increased by one third over the usual month, if compared to March. Mathematically speaking, if the combined sales of vehicles since April and up till 6th of July is at least one third more than that of the usual, then it should balance out each the increased supply and we should see the COE remain at about the same level. Theoretically, that is.
But has demand dipped to even less than one third more than the usual (or 1.33 times), even though the intervening period for accumulating sales orders is a whole three months since the last bid?
Let’s look at some factors that have affected demand of vehicles.
Retrenchments & Unemployment
The aforementioned job losses is significant, and according to statistics, we are having the most number of unemployed in 10 years at this moment in time. This will not, I say, have an impact on the demand for vehicles, for it still remains and aspiration for many, but will it certainly have an impact on the sales of vehicles? There is a difference between the desire to purchase and the actual sale.
Here is the but I’m getting to: the job losses are mostly in the segment of the workforce that may have the desire to purchase a car, but may not have had the means to purchase it even if they did not lose their jobs. I don’t mean make this as a derisory comment, but from what we see, it seems that the worst hit are the lowly paid among our workforce – those among the F&B, retail sales and construction industry – the sectors with the largest number of workers laid off. It is likely that they contribute a small portion of the usual sales of vehicles pre-Covid-19.
And so, although sadly they have lost many jobs in this sector, this may not have a big impact.
Directional Pressure on COE: Slightly Down
Long Sales Period Between Bids
Car distributors by the first bid of July 2020 will have had a full three months of trying to get sales. Have they at least got enough sales to better the usual approximately 2-week sales period between bids?
It has certainly been challenging for most showrooms to achieve sales with doors closed, but now they will open and have about two weeks and a weekend till the next bid. That, plus all the sales promotion that has been going on at most major car distributors for the past two over months.
Deals like “Reserve a Toyota for $500“ online, and BMW offering 12 months of $0 installments, Mazda and Honda pushing sales with major discounts and pay as you bid strategies (letting prospective Mazda owners pay according to what they want to bid for the COE), they have probably, in my opinion, have garnered more sales than the 133.5% of their usual number of sales.
This may not be what many people are waiting for, but it may put upward pressure on the COE bids.
Directional Pressure on COE: Up
Unfulfilled Car Purchase Orders Before CB
The fact that every major dealer should have had some unfulfilled car orders before the announcement of the COE bid stoppage should also support COE pricing. And these customers probably have not received any refunds for two reasons:
One, they signed a sales agreement based on 6-bid or whatever number of bids, and there have been no bids, they are obligated by the wording of the contract to wait for the bids to happen. And even if they insisted on a refund…
Two, they cannot get a refund because all accounts staff of car dealerships are not allowed at work and so cannot process the refunds.
If these customers were to ask for refunds from tomorrow, it is likely they will be persuaded to stay on for the bids, given that it is now only about two weeks away.
Directional Pressure on COE: Slightly Up
Our Prediction on COE Movement
This one is really tough to call. It’s been a long break since the last bid, and looking at the above the factors, the ups and downs seem quite balanced.
We are quite sure the demand for vehicles will be there as transport remains vital for work and work has resumed or will shortly fully resume (we are not saying there will not be a second Circuit Breaker, touch wood!).
Bids for COE Submitted May Be Lower As Car Dealers Face Thinner Profits
With the demand still present and the number of sales, slowly gathered, but over this long period, probably exceeding that of the usual short two week period between bids, what we see that is different now from previously is the mentality of the car buying consumer – they are likely to expect purchase of a vehicle at lower prices. And that is exactly what distributors have offered, big discounts.
So whilst there are sales, the dealer giving discounts to secure such customers may be forced to bid at the lower price or face very thin profits.
Given this last consideration, our call for the coming 1st COE bid of July 2020 will be a lower closing COE price than March 2020’s last bid. However, to the disappointment of the hopefuls, we do not foresee a big COE crash.
Note (below in italics inserted 11th July 2020):
COE Renewal Prices Will Move Again
With the resumption of bids in July, the COE renewal prices for Month of July PQP will remain the same as April’s, but for August, will move, as the LTA will go back to the calculation by averaging the months of February, March and July 2020 for August PQP.
Up until August then, the COE renewal prices remain the same as in our April report.
But as soon as it moves, are you ready to catch the best opportunity to renew it at the correct time? For that to happen, you need to have a COE renewal loan on standby which you can use to renew with.
SG Cash N Cars can help you with that COE renewal at an advantageous time, just call 92782880 or leave us your contact information in the form below (or to your right on laptop) or click here.