Last issue CarBuyer predicted that the recent increase in buyer activity would spill over into this round of bidding, and COE premium spikes across the board seem to have confirmed this. However, the increases this round were smaller than last, with Cat A registering a $705 spike compared with last round's jump of $1,096. Cat B and Cat E prices went up by $1,001 and $992 respectively, roughly half the gains made by each of these Cats in the last round of bidding.

The smaller price increases seem to indicate that there are fewer orders from the hefty backlog left to fulfil, the main driving force behind this year's upward climb in premiums. As we've recently mentioned in these pages, this order backlog is the combined result of buyer response to January's ultra-enticingly low premiums, the sudden order influx generated when rumours of ARF cuts were finally nixed earlier last month, as well as fears over the 2006 quota year's reduced supply. The significant drop in the number of bids for all three Cats this round seems to confirm the gradual clearing of the backlog.

Interestingly, it also seems that some car companies don't think that there'll be enough new buyers around to replace those who are currently collecting their new cars, at least not at the same rate. For example, Borneo Motors, the local Toyota distributor, raised prices for its Cat A cars by only $500, despite the $705 spike in Cat A premiums.

However, one general manager we spoke to said that Borneo's prices were "already high". "They raised a lot when they first heard that the quota for next year would be smaller," he said. In light of this, Borneo's moderated increase can also be attributed in part to a normalising of prices.

Much like how a central bank controls economic growth by fiddling with interest rates, car companies, the larger ones in particular, greatly influence demand simply by dint of the sheer number of orders they gather, and the representative COE bids they therefore control. These effectively set COE premiums, which consequently dictate new prices and therefore the level of buyer interest for the next round of bidding.

In the context of the current COE situation, it goes like this: if I know that a strain on COE supply is on the cards, and I have a great deal of influence over how COE premiums move, I can afford to bump up overall car prices early, taking advantage of buyer anticipations of said supply crunch. Moreover, if I'm riding on a wave of buyer interest generated by the happy series of events outlined earlier, then I can afford to make a pretty big bump.

As mentioned, this round's wave of premium increases comes as the industry readies itself for a new quota year with fewer COEs. In theory, prices should go up in April, the first round of the new quota year, given the squeeze on COE supply. A weakening of demand, as evinced by the smaller number of bids and the smaller spikes in premiums this round, has the potential to balance this increase out.

However, the thought of weaker demand doesn't seem to faze some in the trade. According to the general manager, unless demand radically tails off, "the roughly 20 percent quota reductions across all three Cats should mean prices are going to continue to go up."

The thing is, generally speaking, if car companies raise prices in the wake of COE spikes, they risk scaring away customers. When premiums go up, demand tends to cool, but not increasing prices means shaving margins, something all dealers are loathe to do. But the risk, according to some, isn't all that big a deal.

"Cat A buyers tend to be the most sensitive, a few hundred dollars is a big deal," said one trade observer. "But since COEs are all so cheap now in general, it's really all those marginal buyers that will be put off when prices go up."

"If you're serious about a Cat A car then I think maybe the $12,000-odd level that prices are likely to hit next round will still be bearable," he continued.

With regards to Cat B, cars like the Honda Civic continue to do well, and the recently launched Lexus IS250 has also had a healthy initial showing. We reported last month that the near $1,500 gap between Cat A and E premiums indicated that the latter was likely being used for Cat B orders. The gap has now increased to $1,785, reinforcing this theory.

Unfortunately, though, what all this means is that the best time to buy a new car would have been any point during the last two weeks. Expect premiums to continue to go up, but quite likely at the moderate degree we've seen this round.

Category A Mar 2nd tender
52-week high: $18,901
52-week low: $8,009
Quota: 2,792
Bids: 4,381

The fact that the premium for Cat A went up again this round, despite the significant drop in the number of bids (from 5,001 last round), could indicate that the speculators who've been putting in low-quality bids in the wake of January's low $8,009 premium have all pretty much given up hope.

And considering that the quota for the next bidding round in April will be considerably smaller, expect prices for this Cat to go up next round, despite the gradual clearing of January's order backlog.

Category B Mar 2nd tender
52-week high: $18,001
52-week low: $9,001
Quota: 1,267
Bids: 1,830

Last week saw the launch of the all-new Lexus IS250, and well over 300 units have already been snapped up. Agent Borneo Motors would therefore have been actively bidding for this Cat to ensure deliveries are met, and this could well have had an effect on bumping up Cat B prices.

The Honda Civic could also still be a factor, as this latest model has seen continued strong sales. Trade observers tell us that Honda might also be actively securing COEs for Civic orders, in advance of receiving actual stocks. Again, a smaller quota next round should keep prices up.

Category E Mar 2nd tender
52-week high: $19,001
52-week low: $9,801
Quota: 1,395
Bids: 2,000

After climbing $2,297 last time, Cat E premiums increased by just $992 for this round. Still, the significant difference between Cat A and Cat E premiums suggests that more and more Cat E COEs are being used to secure Cat B car orders, and not Cat A ones as was the case earlier this year.

This could mean that deliveries for cars like the Lexus IS250, now commencing in earnest, are increasingly coming attached with Cat E COEs. As in the other two categories, a smaller quota should see continued strong performance from Cat E for April's first round of bidding.