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.