An alternative to the current exorbitant model of car ownership in Singapore.

  1. The status quo
  2. The problem with the status quo
  3. An alternative solution – in brief
  4. A few worked examples
  5. Conclusion

The status quo

Singapore, given her limited space, has in place a Certificate of Entitlement (COE) system in place for the ownership of cars. What this essentially means is that prior to the purchase of a private motor vehicle in Singapore, one has to purchase a Certificate of Entitlement (COE) – valid only for 10 years – which gives one the right to purchase and operate a private vehicle. Once this COE expires, an individual will have to purchase the COE for another 10 or 5-year period.

The current COE prices in Singapore for larger cars (over 2,000 cc) currently hover over S$90,000 (just over US$70,000) and around S$80,000 (US$65,000) for smaller cars (under 2,000 cc). This coupled with the high import duties for cars makes car ownership one of the most expensive in the world. For instance, a standard Mercedes E200 costs over S$200,000 against S$50,000 if the same car is purchased in Europe.

The justification for this is that given Singapore’s limited land space and high population density (approximately 5.5 million people in 650 square meters); it will not be feasible for cars to be easily available as this will create a grid-locked transportation system. Given the excellent public transportation infrastructure, there is further justification to support this excessively high cost of car ownership.

The problem with status quo

The current system is one that imposes an excessively high cost of car ownership to deter individuals without the financial means from purchasing cars. Another excuse commonly cited is that a good public transportation system negates the need for one to own a car. However, this is missing the point. Car ownership is an extremely aspirational motivation for a large number of individuals. It also offers freedom for individuals who have a pressing need to purchase a car to meet their various personal circumstances. Therefore, these individuals lose out the opportunity to purchase something which has become a necessity simply out of the sheer exorbitance.

In that same vein, there are also individuals who own anything up to 14 luxury cars and who do not bat an eyelid purchasing a S$1.2 million (US$1 million) prized Bentley.

An alternative – in brief

There are currently 1.4 million households in Singapore. There are also about 700,000 private cars on the roads of Singapore – i.e. 1 car per 2 households on average.

The proposal in brief:

  1. Let the existing COE system expire naturally – i.e. the COEs that have been issued should be left to expire as per the remaining lengths they have.
  2. Implement a car permit system.
  3. The car permit will be issued in a random ballot to one in every two households. Households with drivers who have previous driving violations (such as driving under influence, demerit points, etc) will go further down the list and have a smaller chance of getting the permits issued.
  4. Households that receive a permit and choose to exercise the option of purchasing a car can do so at no additional cost.
  5. However, households that do not wish to exercise their permit options can choose to sell it on an exchange managed by the Land Transport Authority (LTA).
  6. Households/drivers who were not successful in the ballot system can get on the exchange and agree on a price with a willing seller of the permit and obtain the right to drive a car.
  7. This way, households that give up their option will get cash instead of having the opportunity of driving a car. This can also be viewed as the natural economic reward they get for choosing to use a public transportation system and for incurring a lower carbon footprint.
  8. If a household already has a permit in place but seek to get additional permits for additional cars will need to pay an additional levy (calculated as a percentage of the prevailing permit price) to the LTA. So for instance, if a household wanted to get one additional car (to the existing car they have), they may need to pay an additional 70% of the prevailing permit rate. If the household wanted to get a third car, they may need to pay an additional 100% of the prevailing permit rate. This additional levy will be incremental for each additional car that the household seeks to add.
  9. This will also give a fair opportunity for individuals to own a car within a reasonable cost rather than the existing system where only the wealthy can afford a car and thus depriving other residents from owning a car.
  10. It also taxes individuals who seek to have more than one car – and this will be a natural economic burden imposed on them for the higher carbon footprint that particular household will incur as a result of additional cars within the household.
  11. It also allows for a small redistribution of wealth to households that may not be financially well-off as they will benefit from selling off the permits they may receive.
  12. It also ensures that the number of cars on the roads is managed and there are always only an X number of cars on the road depending on the permits being released by the government/LTA.
  13. There should also be a number of rules to prevent the hoarding of permits by any one household and a ceiling/maximum of 1 car per household member should be established. In any event, if sufficient levies are charged for subsequent permits, it will create a financial deterrence towards more permits within one household.

A few worked examples

Example 1:

Household A successfully receives a permit. Household B did not receive a permit.

However A decides that car ownership is not a priority for them and chooses to sell the permit on the LTA exchange. B can enter the exchange and purchase the permit from A directly and transfer the funds to A for the right to drive.

Household A benefits financially for forfeiting the right to purchase and drive a car in Singapore (and are rewarded for their environmentally conscious decision) and B will also pay a fair price for the right to own and drive a car in Singapore.

Example 2

Household C already has a permit and has a car. However, they wish to purchase a 2nd and 3rd car for 2 other members in the household.

C goes to the LTA exchange and when they choose to purchase an available permit, they will pay the prevailing rate to the household selling its permit but also pay an additional levy (example additional 70%) to the LTA for purchasing a second car.

They will have to pay a higher levy for the third car (perhaps an additional 120% of prevailing rate) to the LTA.

Conclusion

My question to Singaporeans and friends: will this work? I will be keen to hear about the loopholes, feedback and suggestions.

Thanks for taking the time to read this!