Friday, March 01, 2013

Budget 2013 Point 1 - Car Loan Policy & COE Prices

I was pretty puzzled by the new measures made by PAP government with regards to the car loan policy. I couldn't really figure out exactly what they are trying to achieve.

COE prices have increased recently due to a curb on the number of COE issued. This is basically due to the corrective measures LTA has made due to the excessive number of COE issued prior to 2012. On the other hand, the demand on COE has increased due to an expanding population.

There must be an understanding that just like population, we cannot be expanding on the number of vehicles on the road forever. The primary concept of COE is to control the total number of vehicles on the road rather on the control of the prices. Is COE the best tool to control the number of vehicles on the road? It is supposedly to be so but there are other possibilities as well.

Nevertheless, if you want to control the number of COE issued, you will not be able to control the prices. That's basic economics. However, is COE bidding system efficient? I have been talking about pay-as-you-bid system vs the present system even since 1993. I shall not repeat on this again because apparently PAP won't listen and only interested in the revenue generated by this piece of paper.

I suspect PAP's recent measures on the restriction on the loans are aimed at curbing the demand of cars by the population. But look at the overall impact you will realize that this will further create a great divide between the rich and the middle-lower class.

Some may consider vehicles as "luxurious" goods and only those with money should buy it. I do not think so. Transportation needs via own vehicle is not merely "luxurious" goods like "jewelery" but may be basic needs for many people like salesman. This is especially so when our public transport system is really far from being efficient in such a small city state.

Sometimes you may wonder whether the allocation model for car ownership really makes sense when the rich could own not only one or two cars but a whole fleet of 5 to 10 within a small household while those middle lower class salesman who need their own transport vehicles are deprived of it.

Second hand car market is the only possible means for these people to fulfill their transportation needs. However, the recent measures put up by PAP government applies across the board! Why? If the aim is to reduce COE prices by curbing demand on new vehicles, why would the loan measures apply to the second hand market as well? Second hand car market is the "poor middle class people" market and most likely many people with various needs will not be able to meet the stringent loan restrictions.

Such measures are totally irrational and will further widen the wealth divide between the rich and the middle-lower class. You will see more and more rich families owning more cars which they don't really need (eg. kept in the garage most of the time) while those with real needs are deprived of it.

Curbing demand on the second hand car market really serve no purpose on the two parameters: Total number of Cars and prices of COE.... unless the PAP government is thinking of crashing the second hand car market so that more people will scrap their old car instead of selling off at second hand car market. It is only then they could increase the supply of COEs to the market and reduce prices...but wait, who will benefit? The rich!

We will end up with a totally skewed market situation where all resources will be allocated to the rich while the middle-lower class who may have even MORE VALID need of car ownership will be deprived. Such scarce resource allocation situation will only further inefficiency as well as social tension and instability due to wealth and income inequality; not only in terms of monetary terms but totally lopsided resource allocation that resulted in wastage.

PAP government is not doing anything good by applying such measures across the board. Second hand car market is the indirect means of "fair" resource allocation to the middle class who can't compete with the rich on COE bidding. I would suggest that loan requirement should be set at a max of 80% instead of 50% for second hand car market. At the very least, this will give the middle class a chance to meet their needs instead of squeezing them out of car ownership totally.

There are other issues about the COE and car ownership allocation but I would not want to comment on these for the moment. Let out MPs in parliament a chance to come up with their views, right? :)

Goh Meng Seng


Anonymous said...

Is it wrong to use pricing to decide who gets what? If the rich ended up with all the cars, is it so wrong? Why don't the poorer try to get richer? Cars going to those who can pay is meritocracy; yes?

Anonymous said...

Indeed bewildered with this new policy. Juz wondering if it's making any good?!! The banks and financial institutes were abided, but not the many credit companies out there. The only difference now is that the people who needed a car badly and not be able to fork out the huge sum will just have to turn to these companies and pays a higher premium, that's all...!! And whose the last man stand laughing?!

Anonymous said...

Quote" I would suggest that loan requirement should be set at a max of 80% instead of 50% for second hand car market. " unquote.

I don't think it will work as well as the rich is able to still buy car at either market.

Personally I really am fed up with such tax.. Where in the world is it ethical to charge such high tax with the excuse of controlling the car population, with so much tax collected, what is in the planing to improve the situation in our car population?

Was there any plan in the first place? They may have excuse themselves if COE just started this year.

But COE have been around since 1 May 1990. So they are giving excuses, PAP are simply exploiting our own citizen.

Foreigner Loan said...

Really a very nice post!!! Today personal loan and other type of loan is only option on which is totally depend for all his needs.Its really important to take in mind all those things relating to personal loans.

Thanks friends and keep it up.

Anonymous said...

Good post! and I do believe COE system for controlling the population of cars on the road is just one of the options, and it is not the best. Many household with kids, elderly, handicap, sees car as necessity instead of luxuries. Why only the rich gets the carSSS? Who wants to live in a country with all sorts of control to restrict simple freedom or independence ... in fact, i do recommend one HOUSEHOLD TO NOT OWN MORE THAN ONE CAR.

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