The 'three-week bounce' sends prices shooting up, by more than what most people expected...


By Colin Yong
Aug 2006

SO MUCH FOR the 'comfort zone' of $10-11K, which is where everyone said COE premiums would be hovering these few months. August's first round of bidding saw prices going up across the board by between $1,098 and $1,901, with the Cat B and E COEs now firmly into the $12K region.

The question on everyone's lips is, "have we seen the last of the cheap COEs?" Perhaps not, for there are a couple of factors that point to this lot of certificates being artificially expensive.

First is the phenomenon that's fast becoming a catchphrase for higher COEs: the three-week bounce. There were five Mondays in July, which gave dealers three weeks instead of the usual two to collect orders in between bidding exercises. This was reflected in the higher number of bids placed in Cats A and B.

The second reason, according to several industry insiders CarBuyer spoke to, was that the lunar seventh month has started. "Some buyers stayed away from showrooms in June and early July because they didn't want to collect their new cars during the Hungry Ghost month," said the product manager of a Japanese brand.

"But they know that if they book their cars around now, delivery will be in early September or so and they'll be safe," he continued. The lunar seventh month runs from July 25 to August 23 this year.

The general manager for a Korean brand confirmed that there was a 'significant jump' in showroom activity around two weeks back, and that there was particularly strong demand for Cat A cars. "Customers really don't mind buying cars during this period, but quite a number ask if they can choose when to take delivery," he said.

That said, despite the flurry of showroom activity, it would appear that most dealers didn't have sufficient margins to bid much higher than they did for this round. Cat A, for instance, breached the $11K barrier as early as 2.45pm on Thursday - more than an hour before bidding was scheduled to end - yet there was relatively little movement after that.

This suggests that dealers went in early with what they felt were solid bids, and those who found themselves outbid later on were not prepared to revise their bids.

The price of the Cat B COE also raised some eyebrows. Although the number of bids only went up slightly from 1,332 to 1,365, with just five fewer certificates being available, the premium jumped nearly $2K.

This led to some speculation that market leader Borneo Motors has started bidding for COEs for early bird buyers of the new Toyota Camry. The product manager we spoke to was sceptical, however.

"Borneo is taking bookings with fully refundable deposits, which means customers can get all their money back if they decide not to buy the car after seeing it," he said. "It would be a risk for them to bid for COEs because some buyers might back out." The first units of the Thai-built Camry are expected to hit local showrooms early next month.

What, then, is behind the surprisingly expensive Cat B COE? Could it be one of the premium brands buying market share at the expense of profits? Or is it just a one-off?

No one knows for sure, but if the premium does continues to soar, 'marginal' Cat B buyers - those which buy 1.8-litre Honda Civics, for instance - might beat a retreat back to Cat A. This in turn would bring Cat A prices up, and the vicious circle will continue...

Category A August 1st tender
52-week high: $16,461
52-week low: $8,009
Quota: 2,222
Bids: 3,333

The number of bids for this COE exceeded 3,000 for the first time since April this year, sending the bid ratio soaring to 1.5, up from 1.25 in the last round.

Given the huge increase in demand and the fact that the quota for this round went up by just one certificate though, the $1,098 increase in the premium is actually fairly modest. This indicates a lack of 'quality bids', which could be an indication that distributors have plenty of orders on hand but either don't have ready stocks or are in no hurry to deliver cars.

Category B August 1st tender
52-week high: $16,889
52-week low: $9,001
Quota: 1,084
Bids: 1,365

Following three consecutive rounds of decline, Cat B rebounded to close at $12,501. Unlike Cat A though, the bid ratio compared to the last round was quite similar (1.26 to 1.22), so the higher premium was purely down to distributors placing stronger bids.

"Expect for Cat B prices to remain steady" was our prognosis last issue, but that obviously wasn't the case. Could Borneo Motors be bidding for COEs in advance for Toyota Camry buyers? Doing so would entail some risk, but Borneo hasn't got to where it is now by being cautious...

Category E August 1st tender
52-week high: $16,699
52-week low: $9,275
Quota: 1,116
Bids: 1,669

The Open Cat COE's price increase mirrored that of Cat B, which isn't surprising since the two are often used interchangeably. Cat E certificates are used for 'immediate registrations' too, but it's unlikely that many bids were placed for this purpose this time round, given the lunar seventh month situation.

Next round's Cat E premium is likely to drop, and if this does happen, there could be some good deals available. Distributors will try to clear the Cat E certificates obtained in this round, so buyers could secure a high value COE at a low price.