COE and Car Prices

(26-02-2013, 10:36 AM)lonewolf Wrote:

(25-02-2013, 11:02 PM)yeokiwi Wrote: If COE drops, your car valuation will drop.

OK. I admit I'm a bit rusty on car valuation but I thought its based on the COE that you paid for and not the current COE price. So it should be independent of COE price.

I believe yeokiwi refer to re-sale value, rather than scrap value.

Scrap value is independent of current COE price, but re-sale value drops with lower current COE. At the end, scrap is a better option than sale, even it is pretty new and well maintained.

(26-02-2013, 08:44 AM)thefarside Wrote:

Quote: The tiered ARF's impact on the rich is not as drastic as it looks because they will get back bigger scrap rebates when it is time to deregister their vehicles

Not sure about this. Have anyone seen any clarification from LTA regarding scrap rebates under the new taxation scheme? It is now based on OMV, for cars registered after Mar 2008 (I think) it is 50% of OMV. If this stays, it means the incremental ARF is a write off and goes straight into the govt's pockets - which I think is good because it directed towards luxury vehicles.

The scrape rebate is called the Preferential Additional Registration Fee (PARF) Rebate. The rebate is also tier depending on when you scrape the car and it is based on the ARF paid and not the OMV. So thefarside is correct when he say that owner of larger car will get a bigger PARF rebate when its de-registered.

[Image: PARF-Rebate_zps93585b11.jpg] [Image: NewARF_zps6cfbbb6e.jpg]

PARF Rebate
Straits Times: Tiered Additional Registration Fee (ARF) for passenger cars and taxis

(26-02-2013, 10:36 AM)lonewolf Wrote:

(25-02-2013, 11:02 PM)yeokiwi Wrote: If COE drops, your car valuation will drop.

OK. I admit I'm a bit rusty on car valuation but I thought its based on the COE that you paid for and not the current COE price. So it should be independent of COE price.

I am referring to those cars that currently have cheap COE with more than 5 years left. These cars are enjoying some inflation in their resale price due to current high COE.
The resale price will be deflated when the COE comes down.

I think some 2nd car dealers must be cursing and swearing now.

(26-02-2013, 10:52 AM)CityFarmer Wrote: I believe yeokiwi refer to re-sale value, rather than scrap value.

Scrap value is independent of current COE price, but re-sale value drops with lower current COE. At the end, scrap is a better option than sale, even it is pretty new and well maintained.

I'm still trying to wrap my head around this cos its does not make sense for a re-sale value to drop just because COE has dropped. Because ultimately the value of the 2nd hand car should be attached to some base value; and that value should be the COE + PARF rebate. And those are fixed based on prevailing COE at the time of registration. I think I need to go and dig into this a little further.

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(26-02-2013, 11:06 AM)yeokiwi Wrote: I am referring to those cars that currently have cheap COE with more than 5 years left. These cars are enjoying some inflation in their resale price due to current high COE.
The resale price will be deflated when the COE comes down.

I think some 2nd car dealers must be cursing and swearing now.

Ahh.. of cos. That's make perfect sense now. Thank you.

[quote] The scrape rebate is called the Preferential Additional Registration Fee (PARF) Rebate. The rebate is also tier depending on when you scrape the car and it is based on the ARF paid and not the OMV. [quote]

Thanks for the correction. I was confused because I always refer to my own rebate as an effective % of OMV.

That means for richer buyers the upfront cost is much higher (due to incremental PARF) and effective taxes are slightly higher if they still scrap before 5 years.

Still waiting for the day when I can proclaim that a car is "affordable". My budget for a new car would be about $50,000 to $60,000 total cost for a 1.6L Toyota sedan. Wishful thinking? Haha.....

(26-02-2013, 09:18 AM)yeokiwi Wrote:

(26-02-2013, 09:11 AM)Thriftville Wrote: "Sellers will no doubt try to overcome this hurdle by inflating the amount for the buyer's trade-in vehicle - as they did during the pre-2003 finance-regulated era."

Not sure how it works? could any buddy share your thoughts? thanks!

Eg.
A current car owner that wants to buy a new Merc..

Off the shelf...
New Car price $200,000
Cash required $100,000

Current market trade in value for his old car $80,000
Distributor bumps up his car's trade in value to $110,000 and set the price of new car to $220,000

Voila.. the car owner do not need to pay cash!

Of course it is harder if your car is a cheapo one and any bump up will not reduce the cash outlay significantly.

I'm still a bit confused by this claim of "overcoming" the hurdle though I understand how they are trying to work around it.

Effectively on a cashflow basis if the new car is $200k and the old car is $80k, after the "no cash upfront" transaction , the buyer pays $110k through 5 years installments. That means the distributor is taking a $10k hit to their margins. This may make sense for luxury cars but probably not for smaller cars.

This is similar tactic to other asset based transactions but end game is always a hit to the sellers' margins, primary or secondary market, and hopefully will adjust expectations going forward.

(26-02-2013, 12:27 PM)specuvestor Wrote: That means the distributor is taking a $10k hit to their margins. This may make sense for luxury cars but probably not for smaller cars.

This is similar tactic to other asset based transactions but end game is always a hit to the sellers' margins, primary or secondary market, and hopefully will adjust expectations going forward.

The new car prices(especially luxury cars) set by the distributors normally have a lot of rooms to play with.
That 10k hit is probably factored into the equation. For those who are willing to pay cash, they may even offer a 10k discount.

Besides that, the sale commissions, loan quantum, term of loan and interest rate are assisting tools of the distributor to play this high trade-in-value games.

The margin for smaller cars is tighter but to low budget car buyers, maybe a 1k discount is already enticing enough to swing their decisions.

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(26-02-2013, 11:39 AM)Musicwhiz Wrote: Still waiting for the day when I can proclaim that a car is "affordable". My budget for a new car would be about $50,000 to $60,000 total cost for a 1.6L Toyota sedan. Wishful thinking? Haha.....

It was selling at that price in 2006-2007???

(26-02-2013, 11:39 AM)Musicwhiz Wrote: Still waiting for the day when I can proclaim that a car is "affordable". My budget for a new car would be about $50,000 to $60,000 total cost for a 1.6L Toyota sedan. Wishful thinking? Haha.....

Marry this with increased supply next year (If I recall) there's hope!

(26-02-2013, 01:15 PM)yeokiwi Wrote:

(26-02-2013, 12:27 PM)specuvestor Wrote: That means the distributor is taking a $10k hit to their margins. This may make sense for luxury cars but probably not for smaller cars.

This is similar tactic to other asset based transactions but end game is always a hit to the sellers' margins, primary or secondary market, and hopefully will adjust expectations going forward.

The new car prices(especially luxury cars) set by the distributors normally have a lot of rooms to play with.
That 10k hit is probably factored into the equation. For those who are willing to pay cash, they may even offer a 10k discount.

Besides that, the sale commissions, loan quantum, term of loan and interest rate are assisting tools of the distributor to play this high trade-in-value games.

The margin for smaller cars is tighter but to low budget car buyers, maybe a 1k discount is already enticing enough to swing their decisions.

Interesting this is the similar logic regarding private developers and ABSD End of day for asset bubbles, it is always about the tipping point as psychology are very herd driven.