Scrutinizing Chee Hong Tat’s claim: Are car leasing companies really unlikely to influence record-high COE prices?

In Singapore’s tightly regulated vehicle market, the Certificate of Entitlement (COE) system dictates the cost and availability of car ownership. This system has made Singapore the most expensive place in the world to own a car, and that too for only ten years.

As COE prices soar to unprecedented levels in the bidding session on 18 October, Acting Minister for Transport Chee Hong Tat’s statements in Parliament in response to questions from concerned Members of Parliament, present an optimistic picture, asserting it is “unlikely” that car leasing companies significantly influence these prices.

This stance, however, seems to stand on shaky ground when scrutinized against public data and industry patterns.

Chee’s claim that “COE prices have gone up in a period when demand from car leasing companies has come down” appears to disregard the nuanced dynamics of COE bidding.

According to a Straits Times report in July, there had been an 11.3 per cent surge in the fleet of private-hire vehicles in the 12 months between June 2022 and June 2023, a response to a post-pandemic increase in demand, particularly from the tourism sector. This growth contradicts Chee’s implication that demand from these companies has decreased.

Moreover, while the percentage of COEs secured by leasing companies may show a nominal decrease, the actual impact of their bids on the overall COE prices remains ambiguous.

It is not just the number of COEs won but the bidding behaviour of these companies that can drive up the COE prices.

Chee’s remarks fail to address whether the aggressive bidding strategies of well-capitalized car leasing companies have inflated the COE market, a concern echoed by motor traders and experts.

The Acting Minister’s oversight is significant when considering the COE bidding mechanism, where players outbid each other, often by slender margins.

The bidding system itself is designed to escalate prices until the number of top bidders meets the limited supply quota of vehicles. When companies with deeper pockets, such as car leasing firms, participate, they inherently possess the ability to sustain higher bids, thereby setting a higher benchmark for COE prices.

Industry experts, speaking with The Straits Times, have raised concerns about how easily private-hire cars can be converted into standard private vehicles. For a fee of S$100, existing private cars can be converted to private-hire cars through the Chauffeured Private Hire Car (PHC) scheme, and the process is reversed automatically when the vehicle is sold to a car dealer.

This flexibility allows fleet owners to readily sell their vehicles if there is a lack of renters. There are cases where heavily used private-hire vehicles are refurbished and sold to unsuspecting private buyers, masking the vehicle’s extensive usage.

Additionally, the COE system does not distinguish between bids from private individuals and car leasing companies. Consequently, companies that are able to absorb and pass on high costs to consumers can unintentionally drive up the bids for private individuals, forcing them to pay more to secure a COE.

When questioned about the feasibility of creating a separate category for car leasing companies or treating them like taxis, Mr. Chee pointed out the trade-offs involved. He explained that shifting quotas from existing categories to a new one could potentially inflate COE prices or lead to shortages in point-to-point services. Taxi companies, in contrast to car leasing firms, do not participate in COE bidding; they pay a premium determined by the COE tender exercise, and their COE allocation is based on taxi availability standards.

Chee seemingly attempts to minimize the impact of car leasing companies on escalating COE prices by noting a decrease in their COE acquisition—21% in the last three quarters, down from 27% in 2022—their influence on the market is still significant. In Category B, their winning bids also decreased slightly, from 24% in 2022 to 23% recently.

Critically, the question arises: Have car leasing companies – despite the lowered percentage – failed to win bids in recent COE exercises? If not, it would suggest that they continue to bid successfully, albeit perhaps at a lower percentage. This continued success in bidding, regardless of the proportion, does not exculpate them from contributing to the inflation of COE prices.

Chee’s assurances in Parliament, while aiming to allay concerns about COE price hikes, seem to sidestep the intricacies of market forces and the considerable influence of corporate bidders.

His narrative, juxtaposed against the backdrop of an expanding private-hire car population and the competitive bidding landscape, does not fully reconcile with the experiences and observations of industry insiders and the public.

Furthermore, why did Chee state that it is unlikely that car leasing companies are the main factor for the increase in COE prices, in light of data showing that COE prices have risen during a period of decreased demand from these companies?

Why can’t Chee definitively say whether car leasing companies are the highest bidders in COE exercises, and that private buyers are the ones bidding aggressively for vehicles?

Surely, backend data could easily support this narrative. Why must the Acting Minister resort to such ambiguous hypotheses when the information should be accessible from the government’s end?

Is Chee hoodwinking the general public, or is he simply incapable of understanding economics?