How the COE system went from managing rapid vehicle growth to hitting record premiums

How the COE system went from managing rapid vehicle growth to hitting record premiums


Today, however, criticisms of the COE system seem to overshadow its initial intentions. 

Many people have lamented, sometimes tongue-in-cheek, that the piece of paper to own a car often costs more than the vehicle itself. 

But while the COE system is “certainly one of the more controversial” policies that the Government uses to manage transport in Singapore, it has to be judged on whether it contributes to a more sustainable and efficient transport system and not whether it makes motorists happy, said transport analyst Walter Theseira.

The associate professor from the School of Business at the Singapore University of Social Sciences said “the continued existence of high COE prices and excess demand for cars suggests that, for a variety of reasons, public transport does not yet meet everyone’s needs sufficiently to reduce demand for car ownership to a low level”. 

“So the most important thing to do is not to tweak the COE system, but to keep on improving public transport and urban planning to reduce the need to travel. So that demand falls for car ownership in the first instance,” he said. 

Assoc Prof Theseira also suggested the COE system was never designed to address some fundamental issues in transport. 

For instance, it was designed to efficiently allocate the right to own a vehicle, according to who is willing to pay the most for a vehicle, he said. 

“But it’s not designed to answer the questions: How many vehicles should exist in the first place? And what is the mix of vehicles that suits Singapore’s needs the best?” 

Assoc Prof Theseira added that while authorities have tried answering the latter question with adjustments, these “have sometimes created unintended consequences”.  

“The Open Category was meant to use market forces to gradually change the vehicle mix over time. Yet, this category soon became exclusively a ‘large car category’, because those were the buyers with the most ability to pay, resulting in greater growth for large cars,” he said. 

Another unintended consequence stemmed from policies that “relaxed the growth rate of the private car population in the late 2000s”, said Assoc Prof Theseira. 

“There were a variety of policy factors behind this, including the shift to ERP, which was marketed to the motoring population as a possible way of allowing expanded car ownership by moving motoring charges to usage rather than purchase.” 

There were also changes to the way that quota from deregistered cars was predicted, and policymakers may have wanted to “accommodate the rapid growth of the economy and population then”. 

“Regardless, the end result was that private car growth was on the order of 5 per cent per annum in the late 2000s – and was suddenly cut down by policy in the early 2010s. This resulted in a large bulge of COE issuances for private cars in the late 2000s, which is still affecting the COE system today,” said Assoc Prof Theseira.

“From the viewpoint of ideal transport policy, it’s hard to believe that this is optimal.”

Assoc Prof Theseira reiterated that even though the use of policy to differentiate COEs between mass-market cars and luxury cars might be imperfect, the point is that the COE system is “creaking in many ways because of issues that it was never designed to solve”. 

“It simply solves the allocation problem. Once you have decided how many vehicles should exist, it allocates them to buyers efficiently – although that aspect, of how bidding works and interacts with the market, is also poorly understood,” he said. 

“Unfortunately, all the other problems, such as questions of how to make the system fairer, how to accommodate the different needs of industry, families, motorists and motorcyclists, can’t be answered with the basic framework of the COE system. 

“That requires policymakers to make judgments about how many vehicles should exist and why, which is much more complicated than simply auctioning them off to the highest bidder.”

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