CAR-FUSING IN SINGAPORE!
Folks, lets take a break from trading and let’s discuss the Singapore Car Trade.
Confused about the new LTA policies? Want to buy new car today? Other than looking under your pillow to try to make up the last $50 (for people like me) of the $50,000 needed for downpayment for your spanking new $100,000 Prius C, you need to be equipped with a calculator , some memory and basic primary 6 math ability to calculate the actual cost of your car before you put down that $50 g’s. To do that , now , you not only need to know about the ERP timings in the CTE, , you know need to know about the CEV and the all new ARF.
The rebates for the Low Carbon Emissions Cars kicked in from 1 January 2013, or CEV scheme (Carbon Emissions-Based Vehicles Scheme). This replaced the Green Vehicle Rebate (GVR) which expired on 31 December 2012 or whatever (I ‘ve mostly driven environmental offenders). This is how the CEV works. There are 9 bands. 4 to reward the compliant (think Prius) and 4 to punish the guzzlers (think Range Rover) and 1 for being on the fence. The rebates A1-A4 and surcharges C1-C4 (from 1 July 2013) ranges from +/- SGD$5000-$20000 and $0 for neutral. By the way , do you know the guy called it the A,B,C bands probably studied in LSE on a government scholarship? Anyway, to enjoy the rebates, cars must be Euro V compliant
Every one talks about the new 50% downpayment rules, and to a smaller extent the changes to OMV (Open Market Value). For the uniniated, the OMV is the value of your vehicle plus freight and insurance and the basis by which the LTA calculates your ARF (Additional Registration Fee). Simply, prior to the recent announcements, the ARF was taxed at 100% of OMV for cars registered after 2008. At the end of your COE expiry after 10 years, you get back 50% of this ARF in rebate. With the recent announcements, this gets more complex, no longer a straight 100% tax but its now based on a progressive tier.
| Vehicle OMV | ARF Rate |
| First S$20,000 | 100% |
| Next S$30,000 (i.e. S$20,001 to S$50,000) |
140% |
| Above S$50,000 | 180% |
Source: LTA
How does this impact vehicle prices? Buying a Ferrari will set you back by $300,000 more with this new tier. If you want to buy a Toyota Altis, you’ll be fine as the OMV is under $20,000. If your car’s OMV is is $30,000 (Camry?), your ARF will be increased to $34,000 now from $30,000 given anything from $20,000 to $30,000 is now taxed at 140%. Theoretically, your car price would have increased by $4000. New car dealerships are now “absorbing” this increased (due to their fat margins)
How like that?
Fast forward today. We all know COE s dropped. Johnny Tan wants to buy a car. Goes to the showroom. Car dealer says “this car good got high CEV rebate. CEV all reflected in car price”. Or is it? How would you know. How much is my annual depreciation? How do I calculate it?
Well, you’ll never know as so many variables make up the price of a car, like the every changing COE price. But at least let me explain how you can make sense of CEV’s applicability in calculating your annual depreciation.
Assume the car costs $150,000 today with COE with a OMV of $30,000. Due to the new ARF changes, the tax to be paid upfront is now $34,000 (as highlighted above) and will now be used as the basis of calculating your PARF rebate at the end of COE expiry. PARF (Preferential Registration Fee) varies with the age of the vehicle with a COE and ARF rebate which means you have a higher rebate if you deregister the car earlier than 10 years. See http://www.lta.gov.sg/content/ltaweb/en/roads-and-motoring/owning-a-vehicle/costs-of-owning-a-vehicle/tax-structure-for-cars.html
Quick Primary 6 math calculation – 50% of $34,000 is $17,000. So my annual depreciation is $150-000 minus $17,000 divided by 10 years equals $13,300 per annum. WRONG. You need to apply the CEV rebates (January 2013 onwards) or add on the surcharge come July 2013) to the ARF. So if the CEV rebate is $10000, you deduct it from $34,000 giving you a grand total of $24,000 as your final ARF. You can now safely calculate you annual depreciation which comes to $13,800. Not small change as it translates to at $5000 difference. ( Note the CEV rebate is subject to a minimum ARF payable of $5,000 which means if your OMV is $15,000 and you CEV is $15,000, the government will cap your OMV still at $5000 and not $0 which means you get back $2500 after 10 years).
As a bonus and in the spirit of democracy, let me give you a quick estimate of dealer margins when you buy that car to help you negotiate a better price. These are the components.
Volvo XXXX
Price of Car in Showroom , non guaranteed COE: $155,000
Fixed Cost :
OMV – SGD$31,000
Excise Duty 20% of OMV -SGD $6,200
ARF – SGD$35,400
COE Cat A: SGD$64,000
CEV Rebate: $0
Your Coffee: $0.50c
Total: $136,600.50
Dealer Margin: $18,399.50
Happy car hunting and don’t forget to factor in the CEVs If any in calculating annual depreciation.
Depreciation is a little higher if you look discount it. For the non-finance people, that means the opportunity cost of money.
The new regime is not to increase taxes on mass market cars. Like what you have mentioned, the tax increase is marginal. It’s to suck up as much liquidity out there as possible. So for most people, they have to choose between buying a house or a car.
But thank the sly folks at luxury car markets. Offering over-trades, i.e. buying your car above market value, up to 60k? The cash from over-trades would be used to pay off the cash down payment. This is the only reason holding COE current levels.
Overall, a good thing.
I think you are too kind picking a Volvo to showcase dealer’s margin =)
Er Yes, Difficult to choose car brands for case study – sensitive. You probably had BMW/Merc in mind! I agree with you. this is a good things to roll back the exuberance in proporty and cars. 50% is a killer but is reasonable. Cant find the money for a new one? – get a 5 year old car instead within your budget. Note I have never both a brand new car before. But Asians always like new things,
The ARF increase for luxury cars is in line with what i prefered although i had thought they they would have gone through the COE route ie. if you win a bid for COE, you will pay a surcharge based on the OMV of your car.
Dealers will always come up with innovative deals, just like the financiers, Alls fair. Singaporeans will also be suckers because 99% of us (other than our esteemed bloggers here) buy based on AFFORDIBILITY and not VALUE. …Not with the 50% downpayment. dealers will find ways, you mentioned OVERTRADE as one, to ensure affordibility. Ten years ago we have the Balloon scheme, pay $0 worry about it later…
Next? Property purchases 50% downpayment>>>>?? That would be WOW.
In the meantime,. there s finger linkin’ good second hand car deals in the market now..
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Singapore, 5 April 2013 … The Monetary Authority of Singapore (MAS) will lift the current restrictions on car loans for a period of 60 days for the purchase of used cars1 that were part of car dealers’ inventory before the restrictions were introduced on 25 February 20132. As dealers have up to seven days to register used cars under the Land Transport Authority’s Temporary Transfer Scheme (TTS), used cars registered as of 4 March 2013 will be eligible for this concession.
BACKSLIDING AGAIN… I AM LOSING FAITH.
Ahhhh… yes. That’s what make these interesting, to me at least from the broader perspective.
Reckon better deals to come from second hand dealers. It would be an exit out of a very small door.