CERTIFICATE OF ENTITLEMENT (Merging categories of private cars into single category)

Dr Wang Kai Yuen asked the Minister for Communications and Information Technology whether he will consider merging the Certificate of Entitlement categories for private cars into a single category as early as possible.

Dr John Chen Seow Phun (for the Minister for Communications and Information Technology): Sir, the present two COE categories for cars, namely, Category A and Category B, were formed from the merger of four car COE categories in May 1999 following a review by the Government Parliamentary Committee for Communications.

In its review of the Vehicle Quota System (VQS), the Committee considered merging the car COE categories into a single category as it felt that this would provide greater liquidity and reduce price distortions. However, public feedback raised concerns that with a single COE category for cars, buyers of smaller cars were likely to be outbid by buyers of big and luxury cars. The Committee therefore recommended that the merger of categories should be done gradually and, as an intermediate step, recommended that the four car categories be merged to form the two categories.

Over the last 12 months, the COE prices of Category B were generally higher or comparable to the prices of Category A except on a few occasions, such as in the October tender, when the COE price of Category B fell substantially below that of Category A. This can happen and does happen because in a closed bidding system, bidders are not given any information when the bidding is in progress and they are therefore unable to follow up when the demand for a particular category of COE is weak vis-a-vis the supply.

The Land Transport Authority will be implementing the open bidding system for COEs as a trial in the 2nd quarter of next year. With the open bidding system, bidders will be able to see the going prices during the bidding exercises and make informed decisions when bidding COEs. This will help to reduce wide fluctuations in COE prices like the sharp fall in Category B COE price in the October bidding exercise or when the price for the big car COE fell to $50 previously. We should therefore review whether to merge the two car COE categories into one after we implement the open bidding system.

Dr Wang Kai Yuen: Sir, with the information available in the open bidding system, is it not equivalent to having a single category for all cars?

Dr John Chen Seow Phun: Sir, it depends on the reactions of the bidders. If they choose to bid in a particular category because they just want to buy a particular category car, then it may not be. But if they choose to buy any car as long as its COE price is the lowest, then perhaps what the Member said is true.

Dr Wang Kai Yuen: Sir, would the Minister of State agree that in the previous discussion on this topic, the merger of categories allows buyers a greater freedom to buy cars? As such, open bidding with the information available seems to suggest that the segregation of categories is no longer necessary. Given this, would he consider merging the categories as soon as possible?

Dr John Chen Seow Phun: Sir, from the transport management point of view, it is logical to have only one category. But as I said, there are still public concerns about merging the categories, because they felt that buyers of smaller cars will be squeezed out. In view of that, we are prepared to implement the open bidding system first and then review the results. And if what the Member says is true and that people feel that there is no reason to have more than one category, then we will consider the Member's suggestion.

Mr Gerard Ee (Nominated Member): Sir, I would like to ask the Minister how does one ensure that Category A COEs cater for only those in that income group. Is it not a reality that it is open to everyone to bid for it?

Dr John Chen Seow Phun: Sir, we cannot dictate how people should bid. Anyone, regardless of his or her income level, can bid for a car in Category A. But the fact remains that people are still concerned about the effect of having one single category. Therefore, as I said, we will consider doing so if the concern becomes negligible.