WITHOUT THE THREE-WEEK break that bolstered last round's COE premiums, prices for June's second tender exercise slipped once again, with Cat B sliding a hefty $1,001. The drops for Cat A and Cat E were not so drastic, with each slipping by a relatively low $200.

As our page two story shows, dealers have a great deal of pressure on them to keep prices as low as possible, but a major problem it seems, lies with the replacement car market.

Repeat customers, or owners who traditionally swap their cars for new ones after a two or three year period, now find themselves unable to do so, for a variety of reasons chief amonsgt which are economic uncertainty, rising interest rates and expensive loans that are difficult to get out of.

The product manager for the distributor of a major Japanese brand told CarBuyer that the ratio of registrations to deregistrations has been on the increase. This ratio is used as an indicator of how many people are replacing their cars, and the larger the number, the fewer the replacements.

This leaves first time buyers, or owners looking for cheaper second or third cars, to account for the shortfall and these customers tend not to shop in the Cat B end of the market. For first timers, the gulf between Cat B and Cat A car prices is just too large.

And even for customers with the wherewithal, "the Cat B market has dried up, there's nothing to spark buyer interest for this segment," states the product manager. All the activity, he continues, is to be found in the Cat A market. "At the $65,000 level, you find a lot of activity. This is where buyer interest is concentrated and this segment is dominated by cars like the Toyota Corolla Altis and the Nissan Sunny," he adds.

The product manager also feels that low COEs are not such a bad thing where dealer margins are concerned. Technically, the $200 drop in Cat A premiums for this round of bidding means a $200 margin padding for dealers, which is a good thing. Rather, it's the perceptions that low COEs engender that can be damaging.

"As COEs go down, affordability goes up, and Cat A is slowly getting cheaper, along with Cat E. It's still surprisingly strong, though," says the product manager. "At this level of the market, prices are actually good enough to cushion some of the effects of rising interest rates," he adds.

"People were expecting COEs to be even lower in fact," says the sales manager for a Korean marque. "Sales this month have been a bit slow but the fact that the drop in premiums was only about a few hundred is quite encouraging."

"Low COEs are actually good for everyone, up to a point," adds the sales manager, "dealers can sell more cars on price but it's got to the point where margins are already razor thin." The danger is that as people get increasingly used to seeing low COEs, they tend to get "scared off" as one industry watcher puts it, if prices jump even slightly.

This means dealers have to walk a fine line between preserving margins and sweetening deals, while taking care not to upset the low COE apple cart.

The general sentiment is that prices for the next round of bidding are likely to drop, but not by huge amounts where Cat A and E are concerned. The trade also feels that this trend will most probably continue, at least until a new affordable model with mass-market appeal comes on the market. The same goes for Cat B.

June, 2nd tender
52-week high: $28,798
52-week low: $16,897
Quota: 2,196
Bids: 2,636

The Cat A COE premium dropped by $192, and this was accompanied by a dip in the bid ratio, which fell to 1.20 from 1.30 previously. While this seems to hold up industry sentiment that models with real mass-market appeal are lacking, the drop was expected to be more severe.

That said, the trade doesn't expect prices to improve significantly, however, with fierce competition sustaining a climate of price-slashing, it's a buyer?s market and now's really the time if you're looking for a new car.

June, 2nd tender
52-week high: $30,400
52-week low: $14,002
Quota: 1,113
Bids: 1,299

Cat B prices took a big hit, sliding $1,001 for this round of bidding. This dip seems to confirm general trade sentiments regarding the weakness of the Cat B replacement car market and the bid ratio backs this up, falling to 1.17 from last round's 1.21.

With the focus on the first time buyer market, and with traditional Cat B customers tied up with expensive loans, and not to mention the prospect of higher interest rates, the Cat B slump looks likely to continue for the foreseeable future. Especially without the presence of significantly strong selling models.

June, 2nd tender
52-week high: $30,301
52-week low: $17,300
Quota: 1,152
Bids: 1,538

Cat E prices closely matched the slight fall in Cat A's, losing $201 compared to last round's bidding. The bid ratio also dropped to 1.34 from 1.44 previously. Like Cat A, though, the drop in bid ratio should have corresponded to a sharper drop in premiums that many in the trade were expecting.

Slow as sales seem to have been, there still appears to be a significant degree of buyer interest, sustained in no small part by the current low prices. As we?ve said before, now's probably the best time to go shopping.