Originally posted by Gazelle:
Consider the current OMV system and the zero down payment financing, I would think that it will make it impossible for cars owners to scrap their cars in the first 3 to 5 years. as such the market for new and used car is like to be affected..
e.g. car owner will not scrap their cars, therefore sales of new car will be low and supply of 3 to 5 years used car will be limited.
In order to keep the economy alive, i think the goverment will make new cars even more affordable by reducing taxes....
Does anyone have a different opinion?
Very different indeed. First a word about the CURRENT situation. The used cars market is already badly affected because in the past 3 years. Many owners have chosen to scrap their 3-5 years old cars instead of reselling. Why ? Because the price of new cars have been steadily coming down EVEN BEFORE THE GOVERNMENT ANNOUNCED all the reduction in taxes. Before speculating further, look at some facts:
1. Economy confidence has been low
2. Stiff competition among the car manufacturers
3. More importantly, the pioneer batches of COE have expired. They started in the early 90's. About time. So many more cars are scrapped. This imply that new COE quota has been rising steadily. So this is one reason COE price is finding its way generally. Let's face it since 2001 we are officially in the COE renewal cycle.....
To keep matters in perspective, although the gov says to keep car growth at low single digit but COE quota is growing much faster as many of such old cars are scrapped.
4. Reports in newspaper about few months ago confirm that used car is facing a fast shrinking buyer market as new cars are priced lower due to the above.
Let us ponder a while on what happen. Our gov in wanting very hard to keep its target of car growth have in these 3 years kept the COE quota released fast and even
reduce ARF to make sure people fill up the quota. I am not joking just look at the bid ratio on LTA it is only slightly above 1.00. The side effect is no one thinks it make much sense to buy 2nd hand. Car manufactures are happy. gov is happy. New car buyers happy for now. More COE and road taxes revenue. Insurers are happy. Hey ......
See a ST report saying
http://www.straitstimes.com/columnist/0,1886,2150-230544-,00.htmlSo u see the COE quota is driving the car industry not the economy.

During the next 3-5 years. Car scrapped from the old COE will still increase as that was the car growth trend in the 90's. What about car owner of a 3-5 year old car? Will they sell or scrap? Answer is scrap as used car price would not have picked up. In fact many who want to change their car will try to sell before the 4th year mark as many dealers have switched to the brisk car export trade and willing to pay slightly more. One get better rebates for a younger car too. This all imply a negative bias on the new COE prices. Which means new cars would get EVEN CHEAPER.

Many will argue that existing car owners will keep their cars for full 10 years. I disagree. From my observation, once past the 3 years warranty period, the itch to change car is there since maintenance cost will shoot up which requires one to pay in cash not loan. Add the lower interest rate environment for new cars, many would prefer getting a new car and cover warranty thru loans.
Deduce your own.