Time To Get A New Car?

For many, there has arguably never been a better time to buy a new car.

COE levels have stabilised to around the $30,000 region, a far cry from the meteoric heights attained several years back, while car prices have come down to a level not far off from what they were almost a decade ago. Coupled to the lowest interest rates in recent memory, this makes for a combination of factors that makes buying a new car attractive. However, like all good things, it may not last forever.

In fact, prices of COEs have not remained so consistently below the $40,000 mark for a long time. But for sure, there will always be eternal optimists who are not so easily satisfied, and hope to be lucky enough to secure a COE at a steal.

For these people living in the hope of clinching an unexpected windfall from a freak plunge in COE prices, as happened in the June 2001 tender exercise when Category COE prices fell to a startling $101, the wait could be rather long.

Even if they did get a COE for a steal, they would have to face the "consequences" : any car registered with such a COE will be worth comparatively little in scrap value, owing to the artificially low COE price.

Furthermore, with the advent of open bidding for all COEs from April this year, the chances for such a freak occurrence happening again are virtually nil. After all, such a quirk can only happen when the number of bids is far less than the number of COEs available. In a closed bidding system, one does not really know the number of bids put in by other people, nor their bid amounts, so there is always the chance that there are less bids than the number of COEs available for tender. However, with the open bidding system, which has been on trial for the last few months, alternating every fortnightly with the closed bidding system in certain categories, both these variables will be fully transparent.

With open-bidding, all it would take is just one look at the exceptionally-low price of any COE, for many more to jump into the fray to bid for a COE. Is your bid too low? Boost it up by a few thousand dollars to ensure your bid stays in the running - and so will many others.

The obvious result: Escalating prices that get back to a "market-price" level.

All these point to a likelihood for COE prices to stay at or near the present level. Or worse, should the economy recover and many new models arrive, expect the COE to rise.

Adding impetus to the justification for new metal is the low level of prices that cars are selling for these days. Again, this is a phenomenon that may not last for much longer.

For example, it was recently reported that Borneo Motors were selling Toyota Corollas at a loss to increase their market share. It would not take a rocket scientist to work out that car distributors are in the business to make money selling cars and will only partake in such practices for a limited period of time to meet a certain objective. As such, programmes like these cannot be expected to last forever.

Some will argue that prices are and will continue to be kept in check by the presence of parallel importers. But, it should be noted that official agents/importers have an array of investments such as showroom and workshop facilities, on which they have to justify a return on to their management board and/or shareholders, who will not look kindly towards continued negative returns. Once a leading player in the industry succumbs to the pressure to raise retail prices, its competitors cannot be that far off following suit.

Furthermore, it is now obvious that cars sold by parallel importers are not all that much cheaper, compared with that sold by the authorised distributors. This means that the authorised distributors have already brought their prices to competitive levels, and the scope for further lowering of prices is slim.

The final factor that makes acquiring a new car attractive these days is that buyers can count on interest rates being their ally. Hire purchase rates are at their lowest level in recent memory and this goes a long way towards making that new set of wheels more affordable as monthly payments are considerably lessened.

However, as with stable COE prices and competitive retail prices for new cars, low interest rates cannot be expected to last forever.

The number of interest rate cuts in 2001 were exceptional. They were done to boost a lagging economy, and to spur growth, especially in the wake of the September 11th terrorist attacks.

Recent trends seem to indicate that the economy is making a comeback. The stock market has rebounded comfortably to above the levels it was at before the September 11th attacks. Buyers are also flocking back to show flats, and developers have reported brisk sales of their flats (albeit with some attractive promotions to help boost sales).

All these are signs that the worst may be over, and we can expect to see the economy recovering.

What all these means to prospective new car buyers is that with the recovery in the economy, interest rates will creep up. More people will buy things (including cars) and this will translate to higher COE prices (fixed supply, higher demand). And low car prices may then be a thing of the past.

No one can guarantee that this point in time is the bottom of the market, but if it is any consolation, the chance of prices going significantly lower than what they are today, is certainly less than them going higher. And even if car prices do go lower, this advantage may well be negated and cars may not be any more affordable if interest rates go up.

So, if you are contemplating buying a new car, there has arguably never been a better time to buy one. You could also bask in the fact that your contribution to the economy should help it get on its feet faster.