FOLLOWING LAST ROUND'S three-week bounce, the COE market has come back to Earth with a bump, with sizeable declines in both car certificates as well as the Open Category certificate (which can be used to register anything, but is exclusively deployed for cars).

Category A COEs (for cars 1.6-litres and below and taxis) fell sharply, losing $1,901 to crash through the $10,000 barrier, landing at $9,301.

The falls were more modest for Categories B (for cars above 1.6-litres) and E (open), with prices for both certificates dropping $1,199 and $998 to come to rest at $11,001 and $11,002 respectively.

Based on feedback from the motor trade, the reason that prices are down is simple: buyers aren't buying, and the slump in prices from this round is a reflection of that.

It's worth keeping in mind, too, that early June saw the COE market register a three-week bounce - an extra Monday in late May resulted in a three-week break between COE bidding, giving dealers an extra seven days to collect orders. These additional orders showed up in the system as early June's spike in COE premiums.

In other words, if today's COEs look particularly cheap, it's largely because early June's prices were artificially high.

If anything, there are reasons to expect them to become even cheaper two weeks from now. Here's three:

FEWER LEFTOVERS

Look at early June's tender exercise, and it's apparent that some of the people who booked cars then didn't manage to secure their COEs. Cat A saw 471 people unsuccessful bids, for instance, while 330 came away from the Cat B auction empty-handed.

These unsuccessful bidders ('leftover bids', as the trade calls them) have to try their luck again the next chance they get, so this week's results were probably inflated by their presence.

It looks as if they clinched their COEs, too. This week saw just 176 unsuccessful Cat A bidders and 168 failed Cat B bids. Next time around, in other words, there won't be all that many leftover bids to add to the pool, meaning less competition for the COEs available.

PRICES ARE DROPPING FASTER THAN COES

When COEs come down, prices usually follow, and when that happens to a degree that is greater than the fall in COEs itself, it's possible to look at that in two ways.

One, the low prices could draw buyers to showrooms in droves, causing them to chase COEs back up.

Two, car prices are slashed precisely because there's no buying activity, so much so that dealers expect COEs to continue to sink.

Let's look at what happened this round. Category A dipped by almost $2,000 ($1,901 to be precise), and Toyota distributor Borneo Motors dropped prices for the relevant cars by exactly $2,000. (It's worth paying attention to what Borneo does, because it's the biggest dealer in the market, and because several other players wait to see the company's prices before setting their own.)

Looks as if the price drop matches the COE drop exactly. But go back a little further, to late May. Today's Cat A costs just $799 less than it did a month ago, and yet a Toyota Corolla Altis 1.6, Vios 1.5 E and a Yaris 1.5 E all cost $3,000 less than they did in late May.

There's an air of urgency about that pricing which says that the largest seller of cars in town feels the need to shake up a sleepy market.

REBATES ARE GETTING LOWER

As smarter buyers know, the COE rebate isn't the price which he is paying for his certificate. Rather, it's the price point below which a dealer must refund the difference between the rebate level and the COE premium.

In other words, if a rebate is pegged at $10,000, and the COE comes in at $8,000, the buyer pockets $2,000.

In early June, Borneo Motors' rebate for Cat A cars was $9,000, but the level has since sagged to $7,000. Other dealers have lowered their rebate levels, which means that the trade is covering its collective backside against further falls in COEs.

Those simple signs say that the market expects further falls from COEs, and who are we to disagree?

Of course, where Cat A is concerned, this round's price plunge might just be what buyers have been waiting for. Nothing like a nice number like 'nine grand' to make customers feel that they're getting a bargain, after all, so perhaps the effect will be to bring buyers in and halt the COE slide?
Then again, at $9,301 Cat A still has some way to go before reaching its 52-week low of $8,009, so if you ask us, there's room to fall yet...

Category A June 2nd tender
52-week high: $17,481
52-week low: $8,009
Quota: 2,217
Bids: 2,393

IF ANY SET of numbers should worry motor traders, it's this: this round's bid ratio (the number of bids divided by the number of COEs available) sank to 1.08 from 1.21.

This means that the market for the certificates was barely subscribed, and that's with plenty of unsuccessful bidders from early June taking part in the auction. With most of them gone, could next round's results be anything but lower?

Category B June 2nd tender
52-week high: $16,889
52-week low: $9,001
Quota: 1,088
Bids: 1,256

ONE OF THE managers we spoke to lamented that the larger car end of the car market wasn't seeing any action, so if he's right, the bidding action going on now could be for order-clearing, rather than for fresh customers.

Some waiting lists have started to come down, a sign that new buyers are become scarcer. The waiting period for a new Honda Civic once stretched to November, for instance. Book one now, though, and you could get it in October.

Category E June 2nd tender
52-week high: $18,200
52-week low: $9,275
Quota: 1,111
Bids: 1,716

LOOKING AT THE bid ratio, it's clear that demand for the Open Category has come down, with a fall from 1.72 to 1.54. That's reflected in the price, which dipped in tandem.

Given the parity in price with Cat B certificates, Cat E is surely being actively used to register cars above 1.6-litres now. Could Kah Motor be using them to hack into Civic waiting lists? Or is Borneo using them to flush out stocks of the soon-to-be-replaced Toyota Camry, currently selling at giveaway prices?