Low prices are meant to generate buzz and hence buyer interest. They traditionally push people off fences, and they're supposed to fill showrooms. With COE prices in relative freefall these past few bidding rounds, you'd think that dealerships should be seeing more and more traffic.

Trade sources still consider the market relatively weak though, and while showroom traffic exists, there doesn't appear to be as strong a connection between actual numbers of keen buyers and low prices than you might imagine.

The thing is, as reported in The Straits Times this week, we appear to be enjoying a record run of car sales. Why then are some dealers still so glum? For one thing, the numbers have little to do with enthusiastic demand.

Directly speaking, the volume of cars sold is essentially predetermined by the COE quota, and it's been a record year simply because the LTA has seen fit to allow more cars to be sold.

We've mentioned in previous issues that the industry feels that not only is the market soft, there are also no cars available now, nor are there any on the near horizon for that matter, that have the explosive mass-market appeal to kick-start healthy demand.

Add that to the negative equity situation that many buyers find themselves stuck in, where in order to change cars, they'd first have to pay hefty sums to settle loans, and you have a quagmire that's already difficult enough to get out of.

What's more, dealers are worried about the degree to which buyers have become comfortable with low prices. At the end of the day, it comes down to margins, which are steadily being eroded. Buyers might have the means to pay more, but the soft market has made them far more price sensitive and this has resulted in a newfound willingness to aggressively bargain.

For buyers today, it's become a case whereby they're not so much concerned about prices rising in the future, but rather how low they can make them go now. In a sense, dealers are very much at the mercy of the customer. According to the marketing manager for a major distributorship, "Even customers who can easily afford to pay full price for expensive luxury cars are demanding discounts."

The manager for a Continental car distributorship also told CarBuyer that dealers often have no choice but to accede to demands for freebies and discounts. "Once the customer walks out the door, there's little chance that he's going to come back," he lamented.

For this round of bidding, prices on cursory inspection appear to have stabilised somewhat. Cat A COEs gained nearly $400, and Cat B COEs jumped by $1,000. Cat E remained static. So does this signal good news for the market? Well, according to one manager, at least not everybody in the industry is frowning. "The big players who have the ability to dictate COE prices also have the sheer volume to lowball without losing money," he said.

"However, the fact that the percentage of off-peak car sales have gone up considerably isn't that good a sign for the market in general. People who can't actually afford to buy cars but are
now doing so doesn't equate to healthy demand."

That said, he is optimistic about the immediate future. "The recent changes to the property rules would have freed up people's cash," he said. "I expect knock-on effects to trickle down to the industry. If people have more cash in hand, that gives them more options when it comes to buying cars."

If this does help stimulate healthy demand, the next round of bidding could also see the same gentle spike that characterised this round. It's still a buyer's market, though, or as one insider put it: "$15,000 or $16,000 for a COE is really ridiculously cheap!"

July, 2nd tender
52-week high: $27,769
52-week low: $16,112
Quota: 2,203
Bids: 2,758

CAT A COEs gained nearly $400, after falling over $1,000 in the last round of bidding. Three additional COEs were released as compared to last round but the number of bidders jumped by over 300.

One dealer CarBuyer spoke to said that the recent changes to the property ownership laws have given buyers more options when it comes to cars, given that they effectively possess more cash in hand. Low new car prices, along with a healthier buying sentiment should help buoy the price of Cat A premiums in the next few rounds.

July, 2nd tender
52-week high: $28,990
52-week low: $14,002
Quota: 1,114
Bids: 1,414

CAT B premiums registered a fairly considerable $1,000 gain, building on the $500 spike in the last round. Is this a sign that Cat B buyers are slowly creeping back? While the quota did not go up this round, the bid ratio increased to 1.27 as compared to last round's 1.23, indicating a greater degree of interest.

If the effects of the property ownership rule changes are to be believed, they don't have to be limited to new car buyers or traditional Cat A customers. Cat B buyers would also have experienced the same effects and this might go some way to explaining the increase.

July, 2nd tender
52-week high: $28,499
52-week low: $17,199
Quota: 1,181
Bids: 1,561

CAT E COEs held steady at $17,199. The quota for this round increased slightly but so did the number of bids received over the last round. Bid ratios for both this round and the last were almost identical, which partially explains the unchanged premium.

Some dealers have also expressed a lack of interest in this category. "No sense holding Cat E COEs," said one. "Customers are smarter and they'll curse and swear at us for making them pay more unnecessarily." With fewer people bidding for Cat E COEs, this could very well help boost Cat A and B prices.