Microeconomics and its relation to the classic car market in Singapore

One of the controversial topics in the news in Singapore last week was the announcement by the government that they would reduce the COE (“Certificate of Entitlement”) quota in 2012. For those who do not live in Singapore, the COE is effectively a tax the government levies on any car. The rationale is to limit the number of cars on the road to reduce traffic. The COE has a validity of 10 year period, and after a car is a decade old the owner has the option to renew the COE for another 10-yr period or the car is exported overseas (as an aside, when I was in Jordan in 2009, my driver told me the Nissan Sunny we were driving was originally from Singapore!).

The result of the COE is that cars are considered a luxury item. As of October 2011, the COE (there are different categories for different engine sizes) ranges from SGD $50k to SGD $65k. In USD terms, the cost of this certificate (which is even before the cost of the actual car) is about US$40k to $50k. The current list price for a new BMW 325i sedan is SGD $233k (or USD$184k). As you can see, the barrier for entry to buy a car is a high one. Because of the COE concept, the large majority of cars are exported from Singapore after 10 years as owners would rather buy a new or used car instead of renewing the COE for another 10 years.

An additional barrier of entry for classic cars in Singapore is that cars older than 35 years old must be approved by the government as unique or vintage, and even if approved are subject to a special license that caps the number of days it can be driven a year at 28 days.

To summarize, these various barriers of entry result in the lack of a large collectible classic car market in Singapore. However, one dealer specializing in this market is Autobahn Motorsby Newton Circus. Autobahn is a family run business founded 22 years ago, and the current generation of management is four brothers: Tony, Henry, Jack and Gary Hong. They specialize in high end and classic cars, and it’s always worth a trip to visit Autobahn to browse the current collection of classic cars available for sale.

Untapped had a chance to interview Gary Hong and talk about the classic car market in Singapore. In his estimation, the total population of classic cars in Singapore is approximately 2,000 cars. However, due to the market dynamics, this population is decreasing over time as original owners of cars choose not to renew the COE and instead opt for export or sell for parts.

Gary sees two buyers markets for classic cars in Singapore. The first is the younger generation who appreciate an “affordable”  (in Singaporean standards) vintage car. These include original Volkswagen Beatles and original Mini Coopers. The other market is for true collectors for older sports cars such as MG, Mercedes, Alfa Romeo, Porsche and other older generation sports cars. Buyers in these markets tend to be older and more affluent.

An additional barrier for entry is that local banks are not willing to finance classic cars, therefore buyers need to buy with cash. Even with the growing demand, supply cannot increase to meet this demand. The Land Transport Authority, the governing body for cars in Singapore, only allows cars older than 35 years old to be imported on the Classic Car Scheme. Effectively, these cars can only be driven maximum 28 days a year. The demand for cars on the Classic Car Scheme is limited due to this restriction.

Therefore, to sum it up, the classic car market in Singapore in a language my microeconomics professor would approve, it’s a market with high barriers to entry with increasing demand and reducing supply. The Singapore government further intervenes in the market with a high tariff in the form of a COE.

Regardless of these market dynamics, it’s always a nice excursion to head to Autobahn Motors to see their selection of high end and classic cars. In a country where all things new are considered appealing, it’s good to appreciate some of these classic cars from a bygone era.