Wednesday, March 13, 2013

COEs and the Ownership of Cars

The COE system was introduced over 20 years ago, but cannot shake off controversy. Never has so much been said by so many over so few pieces of paper.

Most people accept the logic in restricting the number of cars on the road and the need to keep traffic moving smoothly. But no one likes to pay more. As a result, we have heard many suggestions on how to change the system, usually with a view to keeping COE prices low for some. I say “some” because there is no one suggestion that benefits everyone who wants a car. So, we have had suggestions of balloting for COEs or allocating based on need. But these suggestions are also not without difficulties, such as defining “need” or determining how one person's “need” is greater than another's. Do those with elderly parents have a greater need than those with infants? What about those who have to work odd hours, or need to move around Singapore as part of their jobs? So long as we agree that car numbers must be controlled, there will be no solution that pleases everyone.

The real question is what is the Government's role when it comes to determining who gets a car? The problem is that there has been no consistent policy when it comes to cars.

When then Minister Dr Yeo Ning Hong introduced the COE system in 1990, he said that the rationale for having categories based on engine size was to “benefit the lower and middle income owners”. In other words, there was an element of social equity in the system. That rationale appeared to be premised on the fact that back in the 1990s, luxury car makers generally produced cars with larger engine capacities. But this has not been the case for some time. European emission standards and the introduction of forced-induction techniques (turbocharging / supercharging) has seen luxury car makers move into the small-car market. So, today, luxury car makers dominate the small car category as well. Lower and middle income owners no longer benefit. The original purpose of engine categories no longer applies. So, why do we maintain this system?

The latest changes to the ARF reaffirm the principle of social equity, making those who purchase large, luxury cars pay more. That is the intention, but what is the likely consequence? It may mean driving more people to the small car market, which will push up COE prices for that segment. And the latest MAS curbs on car loans will make it difficult for low and middle income persons to own cars in any event.

So is there a principle that governs car ownership? I don’t see any. I think we get into these difficulties because we try to fit different and sometimes conflicting principles of free market, social equity and financial prudence. It does not work, raises expectations and ends up frustrating many.

I therefore ask the Minister to review the system and the principles of COE allocation. It’s time to pull the handbrake on the current COE system, and send it back to the workshop for a complete overhaul. First, let us have simple and clear objectives which most, if not all, can agree to. Since we cannot please everyone, I suggest that instead of focusing on who gets a COE, we should look at what kind of cars we want to have on the roads. What kind of car exacts less cost on the rest of us, and benefits everyone more? The answer is simple: those which harm our environment the least.

Car should simply be categorized by their emissions, or other environmental factors. The Europeans have done this well. They are car manufacturers. Over time, they have enforced higher emission and other standards for their cars. The result is that European car manufacturers have had to step up their game, and today, most Europeans buy cars which are well engineered, cleaner and more fuel efficient, compared to say, American cars.

We do not manufacture cars, but with the COE system, we can effect similar change. The engine capacity of cars we buy should not matter. Neither should it matter if they are diesel, petrol, LPG or hybrid. Such cars occupy the same space and contribute to congestion. But it will make a difference if we promote cleaner, more fuel efficient cars. Therefore, substantially more COEs should be allocated to those which are environmentally friendlier, and a smaller number for “dirtier” cars. This will set a clear and defensible policy, and a send a strong message about what we value. It will also indirectly help those who can only afford to purchase smaller and cheaper cars as these tend to have lower emissions and be more fuel efficient.

My second point is about the timing of changes to policies. We have a habit of springing them suddenly on people, such as the recent curbs on car loans, and property cooling measures. This makes it difficult for individuals and businesses to plan, and where plans are affected, it causes frustration and resentment. Why can we not give reasonable warning so that everyone can plan and make informed choices?

I can predict the response - if we had given 6 months’ notice before imposing the loan curbs, everyone will rush to purchase a car in those 6 months. Yes they may, but so what? Those who rush in will know others will do so as well, and they should be prepared to pay more. Others can choose to wait the market out, in the expectation that prices will fall. For the rest of us, there will still be the same number of cars on the road.

The concern is for those who may over-extend their finances. That argument is over-stated. First, it will affect only a small group of car buyers because only so many cars can be purchased in that period. Second, even when there were no loan curbs, there were no significant numbers of defaults for car loans. Thirdly, and more fundamentally, Government should a step back and let people make their own financial decisions, even if it turns out to be a bad one. We cannot protect Singaporeans from every poor personal decision, and even if we could, we should not. Worse still, by acting without warning, the Government has, in the name of protecting some Singaporeans, affected others. It has caused frustration among individuals and companies planning to buy a car and who could well have afforded to service a larger loan, and businesses selling or holding stocks of cars.

We should give everyone more time to understand the new rules and their implications, work out their options and make considered and informed decisions. Such moves by the Government have real consequences on the present and the future plans of Singaporeans. The least we can do is signal early before changing lanes.

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