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The road ahead

Distributors see government regulations and the economy affecting the market.
Monday, January 2, 2017 - 05:50

"Our high luxury brands - Bentley, Aston Martin and Bugatti combined, are now capturing over 50 per cent of the segment," says Wearnes' Mr Roy.

"We've seen strong interest in our core products such as the Golf and Jetta, notably from replacement car buyers," says Volkswagen's Mr Tay.

"Overall sales numbers for Honda has risen due to the introduction of new models in 2016 and the expanded COE market size as well," says Kah Motor's Mr Wong.

"Nissan crossovers continue to be the best selling models in the Nissan stable, making up almost two in every three new Nissan passenger cars sold in 2016," says Tan Chong's Mr Lim.

IN terms of certificates of entitlement or COEs, 2016 was a bumper year as the number expanded by 50 per cent compared to 2015.

There was more good news when vehicle financing rules were eased, and this further boosted demand from replacement buyers with ageing rides.

Yet, not all motor distributors were celebrating in 2016. This was partly due to a slowing economy, and partly due to keen competition for COEs from private-hire companies.

"We can see that even though the market has expanded, prices have not dropped. Instead they rebounded," said Nicholas Wong, general manager of authorised Honda distributor Kah Motor.

Market voices on:

Some mass luxury brands managed to ride the COE wave in 2016. But the year was tough for the super luxury segment, which continues to be impacted by the tiered tax structure and poor economic conditions.

"The only problem area is the high luxury segment, which peaked in 2012 and continues to deteriorate," said Andre Roy, group managing director of multi-franchise Wearnes Automotive.

The good news, though, is that the COE tap should remain open in 2017 and the passenger car quota may even expand by up to 10 per cent.

On the other hand, commercial vehicle COEs could shrink by nearly a third, even as the segment heats up on the mass deregistrations forecast for the first half.

"The commercial vehicle market will be the segment to watch out for next year," predicted Ron Lim, general manager of Nissan distributor Tan Chong Motor Sales.

At the start 2017, distributors share their growth stories in 2016 as they look ahead to the new year.

Ricky Tay, managing director of Volkswagen Group Singapore. VW is the only manufacturer with a direct dealership here

In general, how was 2016 for the car market?

With a 1:1 replacement ratio for deregistered cars, many replacement car buyers entered the market in 2016 as expected.

However, we also saw the easing of motor vehicle financing by the Monetary Authority of Singapore, as well as a surge in demand from the private-hire industry and parallel importers. This combination of factors led to a greater-than-expected demand in COEs, culminating in COE premiums staying in the high range.

In particular, how was the year for VW?

Despite various market challenges, it has been a successful year for our company. We've seen strong interest in our core products such as the Golf and Jetta, notably from replacement car buyers.

We're also pleased to know that the newly launched Touran is popular with customers who want mid-sized MPVs (multi-purpose vehicles) that cater to the many needs of all members of the family, including their children and parents.

Feedback from our customers showed that the Volkswagen product range provides appealing choices for the diverse needs car buyers have, and we will continue building on this success in 2017.

How big will the market be in 2017?

We expect the total new car market to be somewhat similar to the level experienced in 2016. As we are still in the peak of the 10-year COE cycle, we do not foresee significant changes in the COE quota.

Will 2017 be a good or bad year for the industry?

It will be a challenging year for the industry. In our view, with uncertainty in global financial markets and the general slowing down of the economy, car buying sentiment may not be strong.

Current car owners may opt to renew their COEs for shorter terms, which will lead to fewer new cars on the roads. There will also be changes to rules and regulations in 2017 - the CEVS (Carbon Emissions-based Vehicle Scheme) is due for a review, and the shift to Euro 6-compliant petrol engines will occur in September, followed by Euro 6-compliant diesel engines right at the start of 2018. This renders an uncertain future for the industry.

That said, we expect that the government is under pressure to maintain a certain level of growth in the economy, bearing in mind factors such as the slowdown in foreign direct investment to Singapore. The automotive industry can be a source of this growth.

If current rules and regulations are more or less maintained, we anticipate the market to stabilise in the next few months. This may entice new car buyers to rethink the wait-and-see approach, and come back into the market.

Andre Roy, group managing director of Wearnes Automotive, which deals in Aston Martin, Bentley, Bugatti, Jaguar, Land Rover, Volvo, Infiniti and Renault in Singapore

In general, how was 2016 for the car market?

The passenger car market was very strong this year, reaching its highest level in seven years. We saw demand grow across the range, including in the premium segment where we specialise. The only problem area is the high luxury segment, which peaked in 2012 and continues to deteriorate.

In particular, how was the year for your brands?

We distribute eight brands in Singapore and overall it was a very good year. Several brands including Volvo, Infiniti, Jaguar and Land Rover are on track to set new Singapore sales records.

In fact, our high luxury brands - Bentley, Aston Martin and Bugatti combined, are now capturing over 50 per cent of the segment.

How big will the market be in 2017?

It's difficult to predict with any accuracy as it's subject to policy changes, but based on the car ageing profile and current COE renewal trends, I think it's safe to say it will be below 2016's, at around 70,000-75,000 passenger cars. I'm doubtful we will see 2016 industry volumes for a long time.

Will 2017 be a good or bad year for the industry?

I think 2017 will be another good year, but not as good as 2016 for the industry.

I think the premium segment will stay strong, as many premium brands continue to release many entry-level products.

From a Wearnes perspective, taking into account our increasingly popular brands, our focus on the premium segment and Renault's electric vehicle product, we are in a good position to have another record year.

Nicholas Wong, general manager of authorised Honda distributor Kah Motor

In general, how was 2016 for the car market?

The market for new cars grew by about 47 per cent from 60,888 COEs in 2015 to 89,913 in 2016.

Prices for Cat A COEs have risen from around S$45,000 in January, to a high of S$55,200 in June and continues to remain high at around the S$50,000 level.

This was largely due to the easing of financing rules in May and also the aggressive expansion of private-hire companies' fleet size.

Prices for Cat B have also not dropped by much, staying at around the S$55,000 region. We can see that although the market has expanded, prices have not dropped. Instead, they rebounded due to strong competition as well as new players such as private-hire companies.

But the market is tough; in particular, some parallel importers are closing shop and exchange rates have not been favourable against the Singapore dollar.

In particular, how was the year for your brand?

Overall sales numbers for Honda has risen due to the introduction of new models in 2016 and the expanded COE market size as well. It's been a challenging but satisfactory year for us and it would have been better if not for unfavourable business conditions.

How big will the market be in 2017?

The market should continue to grow in 2017 with an estimated market size of above 90,000 units but below 100,000 for Categories A, B and E. But it will be a much smaller increase than from the previous year.

Will 2017 be a good or bad year for the industry?

It depends very much on business conditions as well as government regulations and the economy. If loan regulations continue to ease and the vehicle growth rate of 0.25 per cent is removed from the COE formula, this will add further inflationary pressure on premiums.

Hopefully there are no new market disruptors such as those mentioned, which inflated premiums across the board. If the Singapore dollar continues to weaken, we may see a repeat of 2016's business conditions. Economic indicators have been pessimistic and this may lead to more layoffs, affecting affordability and purchasing power.

Ron Lim, general manager of Tan Chong Motor Sales, the authorised distributor of Nissan cars and commercial vehicles

In general, how was 2016 for the vehicle market?

In terms of sales numbers, 2016 definitely looks like a bountiful year for the market. New passenger car sales are expected to increase by around 51 per cent to about 87,000 units while new commercial vehicle sales are expected to increase by around 12 per cent to about 19,000 units.

In spite of this, the market actually went through one of its worst disruptions in history. This came in the form of a group of new entrants to the new passenger car segment, namely private-hire car companies.

Armed with a huge war chest, these companies mopped up a sizeable chunk of the passenger car COEs in their pursuit of expanding fleet size. This led to keener competition for COEs, as witnessed by the breaching of the passenger car COE premiums above the S$50,000 threshold level despite the huge number of COEs released.

Assuming 50 per cent of the 18,781 rental cars added in 2016 thus far, or 9,391 units, were from the addition of new passenger cars, that will translate to almost one in every eight new cars registered being gobbled up by these private-hire car companies. In fact, the total rental car population has jumped by a massive 2.5 times in a short span of just two years to 48,150 vehicles now, surpassing even the taxi population of 27,532 vehicles (which conversely has seen its population fall by 4 per cent over the last two years). Together, the rental car and taxi population now add up to more than 75,000 vehicles.

While it remains to be seen whether this rate of expansion is sustainable, one thing for sure is that the entry of new private-hire car companies in such a big way into the new passenger car segment will definitely leave a mark on the market in years to come.

In terms of market preference, 2016 continued to see consumers switch out of the traditional sedan segment to non-sedan segments.

While the sedan continues to remain as the biggest segment (at around 37 per cent of the market), it saw its share fall by another 8 per cent in 2016. The biggest beneficiary of this "exodus" (from the sedan segment) is the SUV (crossover) segment, which saw its share go up by 6 per cent in 2016 to around 33 per cent.

In particular, how was the year for the Nissan brand?

In terms of sales numbers, we expect overall Nissan sales to cross the five-digit mark for the first time since 2007 on the back of continued growth in our passenger car sales and light commercial vehicle sales.

Of course Nissan missed out on the private-hire "onslaught" as Nissan is not among the major-selling brands bought by these companies in 2016.

Nissan crossovers continue to be the best selling models in the Nissan stable, making up almost two in every three new Nissan passenger cars sold in 2016. While more competitors have entered the SUV/crossover arena, we are confident Tan Chong is still the single best seller of crossovers in the market in 2016. For light commercial vehicles, we are also confident of continuing our reign as the best seller of light commercial vehicles for the seventh consecutive year since 2010.

How big will the market be in 2017?

Based on statistics, it would seem that 2017 will see an even bigger pool of passenger car replacement COEs being released due to the expected higher number of vehicles hitting their 10-year mark and due for deregistration. However, given the recent pick-up in the revalidation rate of COEs (mostly by five years though), we will likely see the COE pool remaining flat, at best, in 2017.

The segment that will likely take the limelight next year is the light commercial vehicle segment. Based on the latest figures released by the Land Transport Authority (LTA), over 13,000 light commercial vehicles (LCVs) will see their COEs expiring within the first three months of 2017, which could potentially translate to a replacement demand of similar size as many of these vehicles will also see their vehicles hitting or going to hit their statutory life-span of 20 years then.

To put things into perspective, about 15,000 commercial vehicles (which include both light and heavy commercial vehicles) were deregistered in 2015, which was among the highest since 2005.

Assuming 70 per cent of 2015's total commercial vehicles deregistered were LCVs, this will translate to about 10,500 deregistrations of LCVs in 2015 or an average of around 900 units a month. With a potential 13,000 LCVs to be deregistered from January to March 2017, or an average of around 4,300 deregistrations a month, this could translate into an almost five-fold increase in replacement demand!

Even if the figure is halved (due to the poor economic climate), it could still translate into an almost 2.5-fold increase in replacement demand. So it will be interesting to see how this pans out as the biggest concern now is whether there will be enough stocks in the market to cater to this unprecedented replacement demand.

Will 2017 be good or bad year for the industry?

With the absolute market size for passenger cars likely to remain flat in 2017, it seems likely the intense competition for a piece of the market will continue, especially if the private-hire car companies' appetite is unchanged.

Beyond that, the industry also has to deal with three major transitions in 2017. One is the need to comply with the new Euro 6 emission standard (or equivalent Japanese standard) by Sept 1, 2017 for petrol vehicles, and by Jan 1, 2018 for diesel vehicles.

The other is the possible change to the existing CEVS applicable to passenger cars only, which will be subject to review after June 30, 2017.

The last is the discontinuation of the Early Turnover Scheme (ETS) to encourage the conversion of older commercial vehicles to newer emission vehicles by July 31, 2017.

As mentioned earlier, the commercial vehicle market will be the segment to watch out for next year. If the expected replacement demand from the avalanche of commercial vehicle deregistrations were to take place, that could well be the bright spot for the industry.

Vincent Tan, managing director of leading parallel importer VinCar

In general, how was 2016 for the car market?

The first half of 2016 was very good because the COE quotas were higher, so was the COE premiums for Cat A which were under S$50,000.

The currency situation was also more favourable to the Singapore dollar, especially for the yen as the majority of VinCar's sales this year are of Japanese models. The rate then was below S$1.20 for 100 yen, after which it rose above S$1.30.

Most of all, the economy was relatively stable.

But in the second half, the Brexit vote in June created a lot of uncertainty in the market. Business also started to slow down as the economy became choppier. COE prices started to shoot up in June to above S$50,000.

In particular, how was the year for parallel imports?

The Toyota, Honda and Mercedes-Benz brands are our top sellers.

But of course, the Honda Vezel is the best-selling car because of its styling and size. It is the right product at the right price when it was between S$95,000 and S$100,000 (it is now about S$105,000). It is very attractive to replacement buyers, that's why it is Singapore's No 1 model.

Toyota also did well, especially the sleek Harrier mid-sized SUV, as did the Mercedes-Benz C-Class

How big will the market be in 2017?

The market in 2017 could be 10-20 per cent smaller than in 2016. The number of cars that can be scrapped is falling and the COE quota will begin to shrink.

But the global economic uncertainty may affect the market and cause COE premiums to slowly fall.

It depends on sentiment, which is hard to catch. Buyer sentiment is fickle. It changes depending on the mood; if one person feels it, the rest may too.

Will 2017 be a good or bad year for the industry?

Despite all this, I think 2017 will still be a good year as the COE quota will not be at its lowest yet. This is because the number of cars registered in 2007 - 10 years ago - was still relatively high, which means more cars to deregister and turn into recycled COEs. Registration numbers only started to drop in 2008, so on the whole, 2017 should be okay barring the economy.

Axel Pannes, managing director of BMW Group Asia

In general, how was 2016 for the car market?

We've seen steady growth in the Singapore car market this year. There were also a number of developments in the area of personal and urban mobility in Singapore this year.

The LTA and the Economic Development Board announced an electric car-sharing scheme that will be rolled out island wide next year, Nutonomy launched a public trial of a self-driving taxi service in Singapore, and finally, the LTA and the Energy Research Institute at NTU announced plans to test self-driving buses in 2018.

In particular, how was the year for BMW?

In Singapore, to date we have seen a 55 per cent growth year on year in the first 11 months. In the region, we have seen an 18 per cent growth in the first 11 months of the year.

How big will the market be in 2017?

It's difficult to say how big the market will be in 2017 as there are many factors at work. However, I'm confident there will be a lot of positive activity. 2017 will bring more advancements in car-sharing services with continued focus on increasing the utilisation of cars. However, don't take this growth to necessarily mean that the number of cars sold will decrease.

We will also see more electric and plug-in-hybrid vehicles (PHEV) on the road in an attempt to reduce car emissions, petrol consumption and noise pollution. In Singapore, BMW Asia will be launching the BMW iPerformance range of PHEVs for the BMW 2 Series Active Tourer, BMW 3 Series, BMW 7 Series and BMW X5.

BMW is in the second stage of electric cars where we are rolling out electrification across all of our classic brands and models. We aim to deliver 100,000 BMW i and BMW iPerformance vehicles to customers worldwide in 2017.

Finally with the launch of the seventh generation of the BMW 5 Series, in four and six-cylinder petrol and diesel engines, we expect positive growth in 2017.

Will 2017 be a good or bad year for the industry?

It's not about whether or not it will be a good or bad year, it's about what potential there is to grow.

We believe there is a lot of potential for the automotive industry in this region in 2017, but this will be based on a variety of factors such as the changing global political landscape, changing legislation in regard to electric and plug-in hybrid vehicles, the future of Free Trade Agreements like the TPP (Trans Pacific Partnership), and finally the advancement and adoption of new personal and urban mobility services.

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