Friday, April 22, 2016

COE prices to be left to market forces, says LTA

As private-hire car firms lead bids, experts say no evidence that intervention is needed yet


APRIL 22, 2016

SINGAPORE — Amid concerns of aggressive bidding by private-hire car companies such as Uber and Grab for Certificates of Entitlement (COEs), the authorities are letting market forces determine the situation for now, while transport experts said that, so far, there is little evidence to suggest that intervention is needed in the COE market.

The growth of the private-hire car sector “will provide more point-to-point transport options for commuters”, noted the Land Transport Authority (LTA) in response to media queries, and added that this could then reduce the demand for private cars over time.

“The LTA does not target COE premiums, which should reflect market demand and supply. Nonetheless, we will continue to monitor the situation to ensure that the auction continues to function in an orderly manner,” a spokesperson said.

The Straits Times reported last week that Uber-owned Lion City Rental secured 270 bids out of the 810 it submitted in the first COE bidding exercise earlier this month, prompting fears of market manipulation. In the latest exercise that closed on Wednesday, it reportedly submitted 630 bids and got 510.

Asked about such concerns, the LTA also noted that bidders for car COEs have to pay a S$10,000 deposit for each bid, ensuring that there is a genuine buyer behind each bid.

Figures on the LTA website show that in the first four months of the year, premiums have been stable across categories, and have remained lower than levels seen last year. Bidding for small car premiums (Category A) closed at S$47,300 on Wednesday, compared to S$67,601 a year ago, while Open Category premiums closed at S$49,501, down from S$79,500.

While the number of bids placed has risen as premiums fell and the quotas increased, the ratios are comparable to ones seen last year. For example, in the latest exercise, 6,525 bids were received for 3,726 COEs available in the three car categories, or about 1.75 bids for every COE available. A year ago, there were 3,911 bids for 1,891 COEs in the same categories, or about two bids for every COE.

In August 2012, noting that taxis were taking up more COEs in Category A — as much as 25 per cent — the LTA took taxis out of the COE bidding process. The move was also aimed at improving taxi availability: Operators’ ability to get COEs to expand their fleet were linked to their meeting taxi availability standards.

Even so, Category A premiums continued to rise, with bidding closing at S$71,001 in October and S$81,889 in December that year, compared to S$68,656 in July. Car traders TODAY spoke to said they have heard talk of private rental car companies, whose cars serve the private-hire car sector, snapping up more cars recently.

The Government’s relatively “light touch” approach when it comes to companies like Uber and Grab so far could have prompted these firms to act more aggressively, said Mr Raymond Tang of Yong Lee Seng Motor.

But some transport analysts cautioned against tweaking the COE system too early. Dr Walter Theseira, senior lecturer at SIM University, said: “It’s important to distinguish the short-run effects, which are that Uber and Grab have stimulated interest in building up private-hire car fleets, from the longer-run question of whether demand for private cars could be reduced overall if private-hire car apps further reduce the desire to own a private car.”

Moreover, it might be difficult for the Government to intervene given that the current COE system does not significantly distinguish between the different types of buyers, he said.

For example, “nothing stops such companies from signing contracts with the authorised car distributors to bulk purchase a large number of vehicles at once”, he explained.

SIM University adjunct associate professor Park Byung-joon said the LTA should monitor the situation for now as the overall impact “remains to be seen”. “Because it all really depends on how big the demand is ... Any change introduced now could also be an over-reaction and (create further risks),” he said.

National University of Singapore transport researcher Lee Der Horng, however, said there was no evidence “in Singapore or anywhere in the world” showing that private hire reduces the demand of private-car ownership over time. “It is inadequate in jumping to the conclusion to grow (private hire) fleets before the root cause of taxi demand and supply is properly addressed,” he said, referring to efforts to improve taxi availability.

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