Why are used car prices so ridiculously high when COE prices are down? It does not make sense, or does it?
New cars are actually cheaper (in depreciation) now
A brand new VW Golf (Mk7) 1.2 TSI was going for $98.8K over the weekend. This translates to a depreciation of approximately $9.5K/yr. If you do a search for VW Golfs on the second hand market now, there’s nothing below $11K/yr, and most are averaging $12K/yr — even the Mk6 1.2 TSI ones.
A brand new Subaru Forester 2.0 (non-turbo) was also going for $116.8K. This translates to a depreciation of only $11K/yr for a brand new feature packed car. If you look at the second hand market, there’s nothing below $12K/yr for a Forester.
So what has caused used car prices to go topsy-turvy?
Here’s what I think is happening:
- The loan curbs (min. 5 years + 40% downpayment) priced many people out of the market. The high downpayment meant that people with less cash could only buy older cars. 5 year old cars seem to be in a sweet spot.
- People are adopting a wait-and-see attitude in hopes of further COE drops, so they are buying used cars with short lifespan to hold out for another year or two before they get a new car in 2017-2018, the predicted the “COE tsunami” years.
- Rising interest rates and weakening global economy in general deters people from spending on cars or luxury items.
- Old cars with 1-2 years left are being bought by rental companies turning them into private Uber fleets.
The Uber-iztaion of Singapore
In mid-2013 — when COE was some $60-70K — I bought a Subaru Impreza 1.6A with slightly over a year left of life at just below $5K/yr. If you look at the second hand market now, Imprezas are going for around $10K/yr. That’s a whopping two-fold increase. There’s practically no automatic Japanese sedans below $7K/yr right now.
This whole Uber thing took off in the last 1 year or so, i.e. some time around mid/late 2014 till present. I strongly believe this is what wiped a lot of 8-9 year old cars off the market. These old cars were the best targets for rental because the risks are low — if the car is problematic or destroyed in an accident, just scrap it.
Uber, renew or buy?
I’m being asked quite often: Should I sell my car and go public transport/Uber, or renew COE, or buy a new car now?
If you can live with public transport or Uber, why not? It will be cheaper than any form of car ownership. I’ve done my math and any basic car ownership right now would cost you somewhere between $14K-16K/yr for the car, road tax, insurance, fuel, parking, etc. If you have a $1K/mth budget for Uber, I’m sure you’ll be going places comfortably.
But if you really need the convenience of a car, and — here’s the important part — you have the cash to spare, you can either renew 10 years provided your car is in good mechanical condition, or buy a brand new car with better technology, fuel economy, warranty, etc. Used cars are just so ridiculously priced right now that it doesn’t make much sense.
If you are thinking of selling your 5-year old car and going Uber till COE drops, IMHO, now is the time.
Where will COE be headed?
I think COE will still continue to fall a little bit over the next 1-2 years, but I think it should bottom out at around $40K+. There’s a general resistance around that point, because at $40K+ the entry level Japanese / Korean cars could be going for around $70-80K and that seems comfortable for most people (and spells trouble for a lot of used car dealers).