I’m glad that my letter to the Straits Times forum was published on Sat 12 Jan 2013. I’m quoting it here for completeness. (Not sure if I’m allowed to do so)
Tag COEs to owners, not vehicles
The new Carbon Emissions-based Vehicle Scheme is meant to encourage car owners to purchase vehicles that are more fuel-efficient and less pollutive. However, it seems that more owners are hanging on to their less-than-efficient vehicles due to high certificate of entitlement (COE) prices (“Sharp rise in older cars amid high COE prices”; Monday).
COEs were introduced as a means of limiting car ownership. However, by tagging them to the physical vehicle, we are limiting the COE scheme’s purpose and reach.
The authorities should look into decoupling the COE from the physical vehicle and tagging it instead to the individual, that is, the car owner.
The current system does not provide vehicle owners with any incentive to change their cars and take advantage of the advances in vehicular technology and improvements in fuel consumption.
As vehicle owners delay the process of upgrading their cars, the vehicular population here ages and the number of breakdowns goes up. This results in more traffic jams, slower traffic and an overall decrease in productivity.
If COEs are tagged to the individual instead of the vehicle, the owner would be able to upgrade his car. Vehicles will then be priced based on their intrinsic value, instead of being inflated by the COE cost.
Furthermore, if COEs are made non-rebatable and transferable only after the first five years, and perhaps even coupled with a pay-as-you-bid system, it could encourage a more prudent bidding process.
The planning and management of the car population would also become easier as there would no longer be a need to guess the number of COEs made available through the deregistration process.
Unfortunately, as per the restrictions and limitations of the print media, I had to streamline my letter, leaving out a number of clarifications. I’ll do these here on my blog instead.
(a) Pay-As-You-Bid Bidding Process
Till date, I personally cannot understand the rational behind successful COE bidders paying the price of the lowest successful bid. Why allow such discrepancies in bidding practices? We are all familiar with paying of items as we bid and we should continue in that extent. A Pay-As-You-Bid model will provide for a simpler, more transparent bidding system.
(b) COEs to be made non-transferable for the first 5 years and made non-refundable
To minimize the risks of profiteering, all COEs are to be non-transferable for the first 5 years. Additionally, COEs should also be made non-refundable. This non-refundable option is essential in maintaining stability in COE prices.
In the current day environment, if price of the COEs dramatically corrects to say $10,000, existing owners of vehicles 1-2 years old will be looking to scrap their existing ones and replacing them with new ones. When their existing vehicles are scrapped, the un-used portion of the COE is refunded back to them. The refund of un-used COEs provides an unwanted artificial safety net.
Making COEs non-refundable also helps in determining and controlling vehicle growth. The authorities will then be able to correctly forecast vehicle growth as all COEs can be safely assumed to be used to the end of their tenure.
(c) Tag car prices to their intrinsic value, excluding the cost of COEs
If COEs are to be tagged to the owner and not to the vehicle, vehicle prices should be adjusted accordingly to reflect their true value. Leave the COEs bidding to the owners themselves and vehicle dealers, agents, distributors should only concentrate on their original business of buying/selling vehicles and not dwelling into the COE system. Additionally, since vehicle prices are adjusted to their intrinsic value, vehicle loans can then be re-adjusted to only covering only the true asset i.e. the vehicle itself. The cost of the COE should not be allowed to be part of a loan.
(d) Tag COEs to the owner, not the vehicle
At present, COEs are issued and tagged to a vehicle. If the vehicle is sold, the COE is sold along with it. Why is it so? If COEs are meant to limit car OWNERship, shouldn’t we be tagging the COE to the OWNER rather than the vehicle itself?
Think about the situation before COEs were implemented. What was the situation then? Cars were traded purely on their age, their condition and on their own intrinsic value. How was scrap cars handled? Same way that it is done now, via the Preferential Additional Registration Fee (PARF) rebate.
Scrapping a car before it is 10 years old entitles one to a PARF rebate. Cars older than 10 years old, do not enjoy such a rebate. Further more, cars older than 10 years old have to pay a premium road tax to remain on the roads.
As such, in terms of dealing with cars that are older than 10 years old, we already have policies in place to “encourage” people to scrap their cars. This hasn’t changed and the suggestion doesn’t include a change to this.
IF COEs are pegged to owners, how would this change?
Let’s try and put all the suggestions into place and imagine a scenario …
Mr. Tan would like to bid for a COE. COEs are not longer covered by loans and as such, he needs to save sufficiently for the bid and bidding process. He goes to the ATM, submits his bid. The bid price is immediately deducted from his account. If he is successful, he pays for the COE on the exact sum that he has bid.
Mr. Tan is successful and now goes shopping for his car. He can choose between a new car and the resale market as all cars are now traded on their value without COEs. He decides on a new car, a 2-door and registers the car with his new COE.
2 years down the road, Mr. Tan is now married and is expecting a new baby into his family. He sells is 2-door car and changes to a 4-door sedan. He de-registers his COE from this 2-door and registers the same COE to a 4-door sedan instead.
Another 2 years has passed (5th year of the COE), Mr. Tan now has 4 kids and clearly a 4-door sedan is not sufficient. He trades in his 4 -door for a MPV.
All these done within the same 10 year COE term.
A situation rises on the 10th year of Mr. Tan’s COE term. His COE is expiring but his MPV is only 5 years old. What does he do? Clearly, he has a choice to make. He can either
- Drive the MPV till the COE term lapses and then sell the MPV
- Bid for a new COE and use the new COE to re-register the MPV
The age of vehicle and COE are decoupled and are independent of each other.
Each owner must have a valid COE for each vehicle owned.
Now imagine the same scenario applied to commercial vehicles. The suggested changes would allow businesses to purchase vehicles according to their needs. At the beginning, it might be a small van and moving onto a larger truck if necessary, all within the same COE term.
While its true that the suggested changes will not cover all situations and outcomes, it was done in the hope of achieving the following:
- Improving the “flood” and “desert” cycles of COE supplies that we have been witnessing
- Removing the requirement for a “”guesstimate” figure to the number of vehicles de-registered
(Since all COEs are presumed to be used for their entire 10 year tenure)
- Improving clarity in number of COEs available via vehicle growth
- Improving and providing prudence in obtaining car loans and reducing overall monthly debt servicing ratios
(Since cost of COEs are not included in the car loans and are to be fully paid-up at time of bid)
- Provide flexibility of changing vehicle to the COE owner
- Returning the vehicle industry to its core of buying/selling vehicles and leaving the COE bidding process to the vehicle owners
- Discourage “over-the-top” bidding via a Pay-As-You-Bid model
Yes, these might be radical changes to the existing COE system but we are a vibrant and efficient society. We cannot rest on our laurels and must continually challenge ourselves to better our existing policies. Its time for the COE system to undergo a major and radical revamp with or without the above-mentioned suggestions.