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Cars here are invariably depreciating assets - but do we regain some ground when COE premiums skyrocket?
With the COE climate echoing what we saw back in the early 2010s, is it true that we now stand to gain a profit from our existing cars? Here's an attempt to look at things more realistically.
Category: Car Selling Advice
It's understandable - COE premiums are scaling heights that we haven't seen for at least six to nine years, depending on which category you prefer (or can afford) to shop in.
Never ones to waste the chance for any extra bit of cash, however, some car-owners among us who persist in seeing the half-cup-fullness of the situation have started to wonder if the time is perhaps ripe - for striking a good deal in the used car market.
What's the story behind that?
Starters - back to the basics of supply and demand
We don't want to bore you with a topic that's constantly squeezed and wringed dry of its last drop, but here's a simple recap, theoretically, of how things work.
As COE premiums go up, a new car can start to look like a really bad value proposition, since more than half the money you're paying is based on an intangible cert moulded by the supply pressures of an artificially created system.
More so, this applies to mass market models - or most cars found in the Category A market segment - whose retail prices are largely seen to be reasonable only when they hover at, or below the S$100,000 mark with COE.
Finding no sense in giving in to a good battering from strong yet unnecessary financial headwinds, it's not uncommon for many to then turn to the used car market to stake the storm out. In turn, many second hand-dealers, cognisant of the increased demand, seize the opportunity to implement slightly steeper mark ups on the prices of their cars, knowing that these will boast lower annual depreciation rates in comparison anyway.
This is where the inquisitive, profit seeking ones among us come into the picture. If we assume that dealers see the possibility of implementing fatter mark-ups on the cars that they procure, we, as the owners of existing cars, should also see some of those extra margins coming back to us when we transact our cars with them.
And so - this is how the basic theory of higher COE premiums translating into higher resale values for cars goes. At least theoretically.
But if you need a car… you still need a car
Before you start the virtual egg-throwing at a statement so self-evident that it may sound ridiculous, let us explain.
There's a pretty good chance that many among us who are seeking to sell our cars at a profit now still want to drive. Where, then, would we procure a new set of wheels from?
Surely not the new car market.
And so, we return to the second-hand market… in which we find cars that would have higher dealer mark-ups than, say, two-and-a-half years ago. That higher profit margin that you may have just enjoyed from the sale of your own car? That probably applies to the other used car you're now considering as well.
A general, spiritual parallel of sorts we can look towards is the property market. Most of us will note that our places of residence - regardless of size or location - have steadily appreciated in value over the last decade or two. A 20 year-old $450-$500k 5-Room HDB flat in Punggol, for example, would have only cost a whisper over $200k back in the early 2000s.
While the rise may translate on first glance into a fantastic leap in profits, the reality is that everything has become inflated. And if this happens to be your only property, you'll still need somewhere to stay, meaning that you're not really earning as huge a margin as you might imagine once the shifting is done and dusted.
Cars, of course, don't mirror properties since it's highly unlikely (not impossible) for them to appreciate in value. But the notion of a uniform, market-wide increase holds in the current COE premium climate.