LTA wants to merge Cat A and B COEs, here’s why prices won’t come down

Natasha Ann Zachariah (0:07)

Hi, guys. If COE prices gets you excited or riled up like me, then I'm going to need you to watch this episode. Because the LTA just told us that they want our opinions about how COE's forecasts are categorized. So what happens if there's just one category? And will this actually mean lower COE prices?

Welcome to The Usual Place, the weekly podcast where we have real conversations about the headlines. I'm Natasha, and if you're like me and you're deciding whether to get a car, a new car, hopefully my two guests today can help us decide what to do.

Nian Tjoe, Timothy, welcome to The Usual Place. Now, a quick introduction about both of you. Nian Tjoe, you're The Straits Times Senior Transport Correspondent, and you basically look at cars all week. And I want to ask you about what we're going to discuss in a bit. And Timothy, you're an economics professor at the National University of Singapore, and your fields of interest are transportation and urban economics. So thank you both for being here. And Nian Tjoe, as I promised, can you help us sum up what are the changes the LTA are proposing?

Lee Nian Tjoe (1:07)

Okay, to start, I also report on buses and trains and motorcycles and anything that moves.

Natasha Ann Zachariah (1:13)

Okay, that's just FYI.

Lee Nian Tjoe (1:15)

Yeah, just FYI and yeah.

So I think to understand the change, we need to see very quickly what is the existing system. So currently for cars, when you know the COE is what you use to register the vehicle. If you buy a car, you need to have the COE, or if you keep it at home. And basically, there are two types of, two categories of COEs out there for cars, A and B. They are separated or demarcated by the engine power as well as the engine size. And what has been happening is that the prices of A and B, right, A meaning for the smaller cars, B for the more powerful ones, has been converging. I think yesterday, after the tender exercise, we saw that it was separated by a massive $99.

And this is our $130,000, so it's quite insignificant. And this is a problem from the design perspective of the policy. And hence, this is what we ended up with in terms of the proposed change, which is let's bring A and B together into one car category. And then so there will be one price after the tender. And after that, however, what you actually pay the buyer, the car buyer pays really depends on the value of the car, the cost of the car. So a cheaper car will then maybe get a rebate off the price. So whatever is 130 again, you get a rebate. But if the OMB is very high, the cost of the car is very high, then you pay a surcharge on top of it. So that's roughly what the proposed ideas is about.

Natasha Ann Zachariah (2:37)

And what are they calling this plan now?

Lee Nian Tjoe (2:40)

Oh, right. They are going to impose what is called a feebate, which I don't know.

Natasha Ann Zachariah (2:44)

Which is a horrible word. But as Tim will tell us, apparently it is a word.

Lee Nian Tjoe (2:49)

No way.

Timothy Wong (2:50)

Well, I don't know if it's in the dictionary. But yeah, but it is a term that's been used by researchers since they introduced or floated this idea of pairing fees and discounts to sort of disincentivize certain behavior and incentivize, yeah, account balancing behavior.

Natasha Ann Zachariah (3:12)

Yeah, I think when we saw it, we were like, what? What is this? What? Maybe, but I guess it's them trying, I mean, it's the way of explaining the proposed change to the, merging the categories, right? And I want to start there. So what exactly is LTA trying to fix by combining Cat A and Cat B for CAS?

Lee Nian Tjoe (3:31)

Well, I think the simple, to the LTA's eyes in the design of the COE system, Fundamentally, COE is about allocating a tool to allocate COEs, so that we can then take it, put it on a vehicle, whether it's a car or a motorcycle or what nots. And what has been happening historically is that cars are separated, there are two classes, as I said, by their engine size and the power output. And actually, in the beginning, it was just engine. Then some guy came out and said, you know what, luxury cars were sneaking into this COE man for the mass market. And then we need to put some way to keep these luxury cars out because these cars will have small engines, but they are very powerful and they're very luxurious.