SINGAPORE: Proposed changes to the Certificate of Entitlement (COE) system could reshape the used car market, with industry players saying that some mass market vehicles may lose resale value while pre-owned luxury cars could become more attractive to buyers.
The Land Transport Authority (LTA) has proposed merging categories A and B, which classify cars by engine size and power, into a single COE category, and introducing fees and rebates for different car models based on their open market value (OMV).
Under the proposed fee-and-rebate system, the maximum price difference between a higher-end car and a mass-market car would be S$30,000 (US$23,000).
Car dealers told CNA that this could change the price gap between new and second-hand vehicles.
For mass-market models that stand to benefit from such rebates, lower prices for new vehicles could put pressure on the resale value of comparable used cars.
"Consumers are all competing within the same market," Mr Benjamin Loo, chief operating officer of CarTimes Automobile, said.
"If a consumer is able to buy a brand-new vehicle for S$15,000 less, they might reconsider buying a one-year-old pre-owned vehicle. Dealers will have to remain competitive because it does not make sense for a used vehicle to be priced the same as, or higher than, a brand-new one."
Existing owners of newer mass-market cars could also face lower trade-in values if cheaper new vehicles put downward pressure on used-car prices, Mr Loo said.
RESALE VALUES MAY SHIFT
The reverse could happen at the higher end of the market, according to analysts.
The demand for pre-owned premium vehicles could increase if proposed surcharges make new luxury models significantly more expensive, while electric vehicle owners could also be affected.
Categories A and B have traditionally segmented the market for cars into smaller, less powerful models and larger, more powerful ones, based on engine capacity and power.
However, LTA noted that advances in vehicle technology, particularly EVs, have made those criteria “less effective”, as manufacturers are increasingly able to adjust vehicle specifications to fit within existing Category A thresholds.
This has increased competition in Category A and narrowed the gap between the two categories, with Category A premiums exceeding those in Category B three times between February and June this year.
Many EV models are currently configured to meet Category A requirements by limiting their power output.
If categories A and B are merged, newer versions of those vehicles could be sold without such restrictions, potentially making older models less attractive in the resale market.
Asked which current models could be most affected by the proposed changes, Mr Darren Ang of MV Auto pointed to higher-OMV vehicles configured to qualify for Category A COEs. Such models may not qualify for rebates and could instead face surcharges because of their higher OMVs, he said.
Associate Professor Walter Theseira from the Singapore University of Social Sciences' (SUSS) School of Business also said that owners of power-limited EVs may face challenges obtaining the resale prices they had anticipated.
This is because buyers may opt for newer versions of the same models if they are sold without power restrictions under the proposed changes.
Dealers could also adjust their offerings, particularly for cars just above the cut-off for a more favourable band, said Assoc Prof Theseira. This could include removing certain features or making them available only through subscriptions.
DEALERS COULD FACE INVENTORY LOSSES
Dealers could also face losses on vehicles already in inventory if market prices adjust before those cars are sold, said industry players.
Mr Eric Chua, honorary secretary of the Singapore Vehicle Traders Association, told CNA that any changes to policies would create adjustment periods for the industry.
“It is a process where the dealers would have to go through to clear their current inventory, which will run into risk of losses, and then it will moderate and regulate after a while,” he said.
Asked how the dealership might respond if demand weakens for particular models, Mr Ang of MV Auto said it could lower asking prices, offer less for trade-ins or carry fewer units in stock.
“Ultimately, the extent of any impact will depend on where COE premiums settle under the proposed system and how consumers respond to the changes,” Mr Chua added.
Based on the 52,678 cars newly registered in 2025, about half would have received a rebate or seen no change under the changes that have been floated, while the other half would have faced a surcharge.
When asked how the rebate and surcharge amounts were determined, LTA said they were based on a judgment of what would constitute a meaningful price difference between mass-market and higher-end vehicles.
It noted that the historical gap between Category A and Category B COE premiums has generally ranged from about S$20,000 to S$30,000, although the difference has narrowed in recent years.
The changes are intended to better differentiate between mass-market and premium vehicles, particularly as more EVs have been engineered to qualify for Category A COEs despite their higher prices, according to LTA.
The authority added that it would review and publish the band for each car model annually to keep buyers informed before they decide on their purchases.
A public consultation for the proposal opened on Oct 8 and will end on Nov 2. LTA will share its findings and recommendations by the first half of 2027.