ANOTHER COE BIDDING exercise, another collapse in prices... Dealers have been murmuring to CarBuyer for weeks that the car market is showing as much signs of life as an Egyptian mummy, and the latest COE results seem to bear them out.

Category A COEs (for cars up to 1.6-litres and taxis) sank $2,593 to close at just $8,009, the kind of price we saw when the Vehicle Quota System was launched all the way back in 1990. Likewise, the the certificate for cars above 1.6-litres (Category B) tumbled, ending bidding at $9,603, a fall of $1,999.

The simple explanation is that buying activity has slowed down, of course, but what about the underlying reasons for the drop in demand?

Leaving aside the budget end of the market for the moment, traditional players are seeing increasing signs of market saturation. "Our market has to be driven by upgraders, who all have no reason to change cars," says one brand manager we spoke to. "Why should they?"

Indeed, according to sources, there seems to be more than one factor behind today's weak market:

• HIGHER INTEREST RATES

"For loans 7 years and above, it's 3.25 percent," our source points out. "Compare that to last year, or two years ago when it was so much lower. Cars might be cheaper now but you get whacked by the interest, so why should you upgrade if you've got a 2.3 percent loan?"

That's a fair point, especially if you plug in the numbers. Suppose you need to borrow $60,000 over seven years for a new car. That's $878 a month in loan repayments, versus the $830 you'd have to pay with a 2.3 percent interest rate.

• NEGATIVE EQUITY

Even among those itching for a new set of wheels, there's the question of ability to buy. Thanks to falling car prices, second-hand car values have been decimated lately. The result is that a large pool of would-be buyers currently owe more money for their cars than the cars are actually worth.

This negative equity, as the trade calls it, means there is a real shortage of customers. "Those suffering from negative equity, we rule out completely. They drive '04 and late '03 cars. For the market to roll again, 2003 and 2002 cars or older have to come in."

Problem is, many of them have already made the switch to a new car, so there are relatively few left.

• NO MORE BACK ORDERS

The presence of a pool of buyers booking cars and then waiting a few months for delivery can keep the COE market aloft, but some in the trade say that pool is evaporating. "Back orders have totally fizzled out," claims one source.

• BUDGET DAY RUMOURS

One of the things stressing the car trade is that, with Budget Day looming, buyers are waiting in the wings to see if there will be a cut in upfront car taxes, specifically the Additional Registration Fee. Currently at 110 percent, the popular perception is that ARF will be reduced to 100 percent.

If so, however, it's worth pointing out that unless you're looking at buying an expensive car, a small ARF reduction isn't likely to make much of an impact on prices. For every $10,000 in tax-attracting Open Market Value, for instance, a 10 percent ARF cut works out to just a $1,000 savings. Today's low COE prices entails real price cuts that can be enjoyed now. Prices for the best-selling Toyota Corolla Altis have dropped by $3,000, for example.

Given the factors listed above, are COEs set to stay below $10,000 in the long haul? A slight rebound can happen, of course, because $3,000 price cuts are nothing to sneeze at and buying activity could pick up.

Throw in the fact that there are three weeks between now and February's opening bidding round (although Lunar New Year falls on a weekend), and the COE market could see a traditional 'three-week bounce', since dealers have an extra week to collect orders.

The big price cuts make new cars accessible to more buyers than ever, too, so a new wave of first-time buyers could come in to re-float the market, particularly for Cat A COEs. Many dealers have pegged their COE rebates (the price below which a customer gets a refund on his COE) above $10,000, too, so they must be expecting some sort of rebound.

On the other hand, some have kept their rebates low, just to be on the safe side. Borneo Motors' COE rebates start at just $5,000, for example. When the biggest player in the market is worried about the possibility of refunding customers for COEs below $5,000, even after slashing prices by $3,000, what does it say about the strength of the market?

CAT A PREMIUMS plunged a whopping $2,593 to close at a new record low. This is the first time in recent years that Cat A premiums have dipped below the $10,000 mark. Interestingly, however, the bid ratio for this round, or the number of bids divided by the quota, actually went up to 1.15 from 1.10 last round.

This points strongly to the fact that it really is a buyer's market at the moment, a market that seems to consist entirely of extremely price-sensitive consumers. Premiums can't stay at this level, though, and the fact that some dealers only revised prices down by $1,000 seems to confirm this.

AFTER RECOVERING LAST round to close at $11,602, Cat B premiums slumped once more, hovering perilously close to the $9,001 52-week low. The number of bids also fell significantly by 393, indicating considerable weakness in demand.

The Cat B market, traditionally the domain of the replacement car buyer, has been steadily weakening, with the only positive activity in recent bidding rounds coming from strong sellers like the new Honda Civic. One car isn't enough to drive the Cat B market, though, do don't expect things to change drastically for the next round of bidding.

CAT E PREMIUMS crashed again this round to yet another 52 week low. As Cat E premiums move in step with those of the Cat A, it's no surprise that they've mirrored this round's collapse of Cat A premiums.

When Cat A prices hit last round's 52 week low, price adjustments by dealers obviously haven't had the desired effect of filling up showrooms with "quality" buyers. The first-timers who make up the majority of small car buyers now, aren't likely to want to shell out extra for immediate registrations, the traditional purpose of Cat E.