Car rental agency

How the COE of S’pore affects the carpooling sector, commerce with vehicle fleets

Disclaimer: The opinions expressed below belong solely to the author.

Certificate of Entitlement (COE) awards have recently been a sore point for Singaporeans. After all, COE price records have been broken twice within a few months.

With rising COE prices, a car is increasingly becoming an unattainable dream.

This has, predictably, caused some discontent among Singaporeans. Some have suggested private rental companies are driving up prices due to aggressive bids, although several companies have denied doing so.

Nevertheless, public concern is not completely unfounded. Of the nearly one million cars in Singapore, more than 600,000 are private and rental cars, including those used by private transport services.

Needless to say, the COE system, which is over 30 years old, was not designed for a time when private rental cars would represent a significant proportion of the cars on the road.

All of this begs the question: is it now time to reconsider whether the COE policy needs to be overhauled?

What is the interest of the COE system?

For starters, it will be good to understand what COEs are designed to do.

Introduced in 1990, the vehicle quota system was intended to control Singapore’s car fleet and avoid congestion in Singapore. Under this system, anyone wishing to own a car would have to bid for a COE.

After successfully obtaining a COE, one could then buy a car and own it for 10 years. When the 10-year period has elapsed, vehicle owners must either extend the certificate or cancel the vehicle registration.

COEs are available for different types of vehicles – for example, category D is for motorcycles, while category C is for utility vehicles.

COE price in July 2022 / Image credit: Motorist.sg

The amount that COEs cost is therefore subject to market forces – supply is determined by the number of vehicles that are delisted, as well as the number of vehicles allowed to increase; while demand is determined by the number of companies and individuals wishing to register new vehicles.

The policy is meant to send the message that having a car is not a need, but a privilege that is only available to those who can afford to pay a premium to drive.

So far, the policy appears to have been successful in controlling congestion in Singapore. Singapore ranks 41st on the Traffic Congestion Index, and even peak hour traffic does not result in city-wide traffic jams under normal circumstances.

Our public transport system is also considerably well developed – trains are clean and often punctual, and there are buses to almost anywhere in Singapore.

However, this does not mean that the system is flawless. After all, COE’s rising prices aren’t exactly an ideal situation for those who need their own vehicle (think families with kids, pet owners, etc.).

More importantly, the increase in the number of drivers of private rental vehicles has led to a group that needs their own car, not only for personal use, but especially for work.

Cars are no longer a luxury item; they are a means of production

The rise of the ridesharing industry means that not only is the gig economy on the rise. It also means that for many workers who depend on deliveries and private car rentals for their income, their vehicles are a means of production.

These groups are not the only ones who depend on vehicles to survive. Businesses such as logistics companies like Ninja Van and Lalamove, as well as car rental companies that have large fleets of vehicles, also rely on their vehicles to keep running.

While these companies may not be bidding or raising prices, their site workers are certainly involved in bidding – after all, they need a way to continue to earn a living.

Take delivery courier
Image Credit: Rest of the World

In this sense, cars are not really a luxury item for them. Instead, they have become a way for them to earn a living and support themselves and their families.

These couriers and delivery drivers, however, bid for the same limited supply of certificates that the COE policy really targets: individual consumers who want a car for personal use.

It’s something the Singapore government hasn’t considered yet – a time when vehicles are a means of large-scale production. As such, Singapore’s current COE system and vehicle fleet control methods require serious changes to accommodate the rise of this new group.

As is now the case, the COE system faces several problems; if not now, then in the future they will inevitably become too important to ignore.

First, vehicles are becoming a necessity for a growing number of Singaporeans – and these individuals and businesses often cannot afford to give up bidding for COEs, no matter how astronomical the prices.

Second, vehicles used as a means of generating profit are becoming more common, which means that those who need vehicles for personal use are bidding for the same certificates as those who might be willing to spend more for what is actually additional capital for a business venture.

Finally, there is the question of where drivers and private drivers fit into this categorization. While they use their vehicles as a means of survival, they may also use the same vehicles for personal business.

Time to scrap the COE?

With all these issues, is it perhaps time to abandon the vehicle quota system and with it the requirement for vehicle owners to obtain a COE before purchasing vehicles? Well, not quite.

The system still works to control Singapore’s vehicle population, but some changes are needed before the system can work for everyone’s benefit.

In the end, vehicles always travel the same roads, and without a strict limit on the number of vehicles on the road, there could be significant difficulties in controlling the vehicle fleet.

Primarily, only similar entities should bid against each other. This means that companies that depend on fleets of vehicles should bid among themselves rather than against ordinary citizens.

After all, businesses that depend on vehicles for profit are fundamentally different entities from individuals who use vehicles for personal purposes, as well as drivers who use vehicles for mixed purposes.

These companies have large cash reserves to draw on, and successful companies are better able to afford vehicles, which means greater capital and profits in the long run.

If the current system continues, individuals who may not have the same fortunes to draw on could find themselves squeezed out of the market entirely, since they are unable to make the same offers for COEs, and especially since the vehicles they would obtain would not be used as a means of profiting further.

get driver singapore
Image Credit: Kham via Reuters

While private drivers and delivery people may retain the profits of using their vehicle for work, in the long run they may also suffer the same fate as companies bidding for more and more vehicles to expand their business. .

A possible solution to this would be to increase the number of Centers of Excellence categories. Currently, there are categories for less powerful vehicles, motorcycles and utility vehicles, i.e. trucks, vans, etc.

A separate category for mixed-use vehicles, as well as for-profit vehicles, may be required to ensure that companies exhaust the number of COEs available to the industry before bidding in the open category. This can reduce the amount of fallout in the passenger car market.

At the same time, because there are still related markets, prices will not be completely independent, which means the government still has leverage to fall back on if the vehicle fleet grows at an unacceptable rate.

Another issue to consider is that companies like Grab can play a bigger role than just providing a platform to match drivers and customers – there will inevitably be drivers and drivers who can’t buy their own vehicles. .

Platforms like Grab will then need to provide those drivers and drivers with vehicles so they can start working, and this can prove to be a valuable area for platforms and government agencies to collaborate on.

On the one hand, these platforms could benefit from special privileges with regard to the acquisition of vehicles, on the understanding that they must use the vehicles within the framework of daily operations.

This can reduce the need for drivers and passengers to bid for COEs before starting work for the rig, as they can enter into long-term rental contracts with the company, with the option of eventually becoming a landlord- operator. The COE system will therefore remain functional and serve to limit Singapore’s vehicle fleet without necessarily making it more confusing.

Either way, COE prices will be reduced and more likely kept at a reasonable price if platforms such as Grab are offered alternative methods of acquiring vehicles for commercial purposes.

The multitude of complaints that have been aired recently about high COE prices are not without merit, and something needs to be done. Anyway, let’s not throw the baby out with the bathwater.

Singapore remains a land-poor country and we cannot afford excessive amounts of vehicle space, be it roads, parking lots or other amenities.

The vehicle quota system has proven to be an effective way to manage Singapore’s vehicle fleet, and it can still remain functional, although it can be improved. Given that there is a growing class of delivery people and private drivers, now is the time to consider concrete solutions to age-old problems, before they become too serious to deal with.

Featured Image Credit: GetGo