COE - Figure it out

Should you get new set of wheels?

Now may be the time to take advantage of high COE and scrap rebates on cars more than a year old
As prices of Certificates of Entitlement (COEs) have fallen to 12-year lows, it is time to take out the calculator and do some homework.

If you currently own a car, you may discover that it could cost the same, or even less, to run a new car.

Says car reviewer Chye Kit Soon: 'There are people who are not aware of the attractiveness of switching to a new car. In the first place, it seems logically perverse that it is not much more expensive to switch to a new car.

'People think: 'A new car must depreciate at a higher rate, right?' So, it has not crossed their minds to do some calculations, or ask someone for help with the math.'

Dig out your car registration card, and check how much the COE cost you.

If it came to much more than $15,501 or $16,112 - the figure for cars above and below 1,600cc, respectively, in this month's first bidding - you could be better off giving up your old car for a new one.

In doing so, you will get a rebate on the COE value for the remaining lifespan of the COE from the Land Transport Authority (LTA).

Check also the scrap rebate - also known as the Preferential Additional Registration Fee (Parf) rebate - that your existing car can fetch when it is de-registered.

Due to a change in LTA policy, cars with COEs obtained before the May 2002 auction fetch a higher scrap rebate than others.

Together, the COE and scrap rebates, which are determined by formulas, can make a compelling reason for you to make the switch.

Find out what your rebates are at the LTA website, http://www.onemotoring.com.sg/, by clicking on 'Online Enquiries' and then 'Parf/COE Rebate', and keying in the required information.

In recent years, tens of thousands of motorists whose COEs cost them as much as $110,000 - yes, COEs once went for crazy prices - have made the switch, by trading in their car to a car dealer who went on to export it or scrap it.

Of course, if you wait a few more months, and if COE prices fall in a big way later, you would be even better off switching to a new car then.

However, as Mr Chye, a lawyer, says: 'In markets such as that for stocks and COEs, few people can catch prices at the bottom. COE prices may well go further down, but if the math makes sense now, why not switch?'

The Sunday Times presented real-life scenarios to him for his analysis.

The analysis below will take you through the process step by step, showing when it is attractive, and when it is not, to switch to a new car of an equivalent model.

The calculations do not take into account factors that vary from motorist to motorist, such as loan amounts and interest rates.

If the interest rate on your loan is higher than the present market rate, it would be even more attractive for you to switch to a new car.

In comparing annual depreciation rates, note that the figures are calculated as averages over the remaining lifespan of the car. In practice, the depreciation rate is higher in the car's early years.

So, if you switch to a new car now and sell it later after driving it for only a few years, it will be subject to a higher depreciation rate.

by Leong Chan Teik
chanteik@sph.com.sg
The Straits Times Interactive

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Worth the switch

Current car: Honda Civic VTi (1,600 cc)

COE: $36,992

Car registered: November 2000

Total of COE and scrap rebates if car is deregistered this month: $47,603

Car sale price to dealer now: $49,000

Scrap rebate if car is kept till 10th year: $17,299

Annual depreciation for remaining 5.25 years: ($49,000 - $17,299) divided by 5.25 = $6,038



New car: Honda Civic VTi (1,600 cc)

Price: $70,500

Scrap rebate at 10th year: $10,056

Annual depreciation over 10 years: ($70,500 - $10,056) divided by 10 = $6,044

Observations: This case illustrates the benefits of switching to a new car, says Mr Chye.From now till it reaches its 10th year, the five-year-old Civic will depreciate at around $6,000 a year - the same rate at which a new Civic will depreciate over 10 years. Why keep the old Civic when you can get a brand new one for the same depreciation cost? Maintenance costs will be lower for the new Civic, and you will enjoy its improved engineering features.



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Borderline case

Current car: Mitsubishi Lancer auto (1,600 cc)

COE: $27,564

Car registered: May 2004

Total of COE and scrap rebates if car is deregistered this month: $36,970

Car sale price to dealer now: $45,000

Scrap rebate if car is kept till 10th year: $8,558

Annual depreciation for remaining 8.75 years: ($45,000 - $8,558) divided by 8.75 = $4,164



New car: Mitsubishi Lancer auto (1,600 cc)

Price: $55,988

Scrap rebate at 10th year: $7,796

Annual depreciation over 10 years: ($55,988 - $7,796) divided by 10 = $4,819

Observations: This case is what might be called a borderline one.The Mitsubishi is only a year old and it has a lower depreciation rate than a new one, so why switch?On the other hand, it is not prohibitively expensive to switch.For $655 more a year in depreciation, the owner may still want a new car.



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Definite no-no

Current car: Nissan Prairie (2,000 cc)

COE: $28,998

Car registered: November 2001

Total of COE and scrap rebates if car is deregistered this month: $48,860

Car sale price to dealer now: $55,000

Scrap rebate if car is kept till 10th year: $18,915

Cost of ownership for remaining 6.25 years: ($55,000 - $18,915) divided by 6.25 = $5,773



New car: Nissan Lafesta (2,000 cc)

Price: $86,500

Scrap rebate at 10th year: $13,196

Annual depreciation over 10 years: ($86,500 - $13,196) divided by 10 = $7,330

Observations: It is cheaper to hold on to the present car. The Nissan Prairie has a significantly lower depreciation rate than the new equivalent model, the Lafesta. Only if COE prices fall further will the owner find it attractive to switch to the Lafesta.Mr Chye says an option is to switch now to a model which costs less, such as the $82,469 Mazda 5 or the $71,888 Hyundai Traject.