Ride-hailing, COE prices and Singapore’s car-lite goal

02 Jun 2023

Business Times, 2 Jun 2023, Ride-hailing, COE prices and Singapore’s car-lite goal
A TOYOTA Corolla hybrid can go for as little as US$27,000 (S$36,500) in New York, £31,000 (S$52,200) in London, and around 2.5 million Japanese yen (S$24,200) in Japan.
Here in Singapore, driving a similar Corolla Altis hybrid away from a dealership last month would cost a buyer S$209,888.
Every decade or so, car prices in Singapore surge to stratospheric levels on the back of falling supply and robust demand.
Supply and demand
The shortcomings of Singapore’s 33-year-old COE bidding system – with its feast or famine supply cycles – have been discussed before, and calls for reform have been made.
Since 1990, to control vehicle population and prevent overcrowding on roads, Singapore has required car owners to pay for a COE. Supply of the latter is controlled, with new COEs auctioned fortnightly.
The quarterly quota is determined by the rolling average of COE de-registrations in the four preceding quarters, with a zero growth rate for the car population since 2018.
As COEs have a 10-year validity, such a system has historically meant that the supply of vehicles has varied significantly each year – leading to significant price volatility.
“The root problem is actually the COE cycle, which results in what is likely an inefficiently low supply of COEs in some years,” said Walter Theseira, who is an associate professor at the Singapore University of Social Sciences’ School of Business.
In recent years, however, the presence of commercially-driven private-hire vehicle(PHV) fleet operators in the bidding pool seems to have pushed demand higher.
Being able to generate income from a PHV – whether through ride-hailing or car-sharing – enables a higher COE bid and goes some way towards pricing private car owners out of the COE market.
“When you have low COE supply, any small changes in demand naturally have a magnified impact on COE prices,” Prof Theseira said.
The government has worked to reduce volatility and smoothen out supply in COE, including bringing forward and redistributing the supply of five-year COEs last month.
Still, with a changing demand landscape and zero vehicle population growth, the price pressures in motor vehicles may persist for some time.
Shifting dynamics
The PHV population has grown exponentially in Singapore since apps such as Grab and Uber first showed up around a decade ago.
Data from the Land Transport Authority (LTA) showed the number of private-hire chauffeur and self-drive cars on Singapore’s roads rose from nearly 19,000 vehicles at end-2014, to over 77,000 vehicles five years later.
Over the same period, the number of private and off-peak cars fell around 8 percent – from 575,000 in end-2014 to 528,000 in end-2019.
The taxi population, meanwhile, has halved from a peak of 28,736 in end-2014, to around 14,000 currently.
While the PHV fleet moderated during the Covid-19 years, it is growing again – the number of vehicles rose around 11 per cent from Apr 2022 to April 2023.
Associate professor Raymond Ong from the National University of Singapore(NUS)‘s department of civil and environmental engineering noted that the rise of ride-hailing apps has disrupted taxi operations around the world.
The ease with which a ride can be booked has led to some opting out of car ownership, Prof Ong said.
Jonathan Chua, regional general manager of ride-hailing platform Tada, noted that many cities are pursuing car-lite policies, with significantly less infrastructure to support car ownership.
“We believe that shared rides are one of the solutions to meet challenges, and will become more widespread as a result,” Chua said.
Car-sharing operators, which offer short-term self-driven rentals, are also seeing stronger demand.
Jenny Lim, Singapore head at BlueSG, said the company crossed five million rentals in March this year. The car sharing operator runs a fleet of close to 1,000 electric vehicles.
The expansion of PHV fleets has alarmed those who own or aspire to own vehicles, and has led to demands that PHV operators bid in a separate COE pool.
Yet, such a system is not necessarily more equitable.
“From the social perspective, it is hard to say why private buyers should be privileged over, say, taxi and PHV passengers or renters of PHVs,” said Prof Theseira.
Prof Ong noted that most people who desire cars want the freedom that personal vehicles offer: “Freedom of planning your own time, and freedom of doing what you want knowing that there’s a car at a car park waiting for you.”
Others may have mobility needs, or may need a car for work.
“There will be people who are disadvantaged or disabled, or families (with such individuals), who genuinely do need these vehicles,” said Adrian Lee, co-founder of car-sharing platform Tribecar. “I have seen among personal friends that for some, having a vehicle keeps them sane or makes it possible for them to support their family.”
Car-sharing services may be able to support at least some of these needs.
Transport Minister S Iswaran said in Parliament last month that car-sharing could be a more efficient solution.
“It will save households a lot more money than buying a car and incurring the depreciation,” he said in response to a parliamentary question about ways of allocating vehicles beyond price.
He cautioned, therefore, against imposing arbitrary caps on the PHV population, as have been proposed by some. Such vehicles serve a wider segment of society than private cars, he added.
The move towards a higher proportion of shared car usage is a logical one in Singapore, given a growing population and space constraints, experts say.
Associate professor Lynette Cheah from the Singapore University of Technology and Design, who leads the sustainable urban mobility research group, said: “There’s going to probably be an increasing role for them if people are not as able to afford owning cars.”
BlueSG’s Lim said there is a “growing appreciation of how car-sharing provides the convenience and affordability of access to a car as and when needed, without the burden of long-term financial commitments”.
Tribecar’s Lee estimated that operators in the car-sharing space currently support anywhere between 20 and 40 households per car.
He estimated that self-driven car-sharing operators currently account for less than 5,000 vehicles in Singapore, and growing this to around 50,000 – making up 10 percent of the private car population – would make a bigger impact.
“If you hit around 50,000 vehicles, you will really make a generational shift ... where people really don’t need to buy a car,” he said. “It makes it viable when there is good availability, good access to the type of vehicles you need.”
Rather than viewing PHVs as the cause of the COE pricing problem, it may be sensible to reframe them as a potential solution.
Tada’s Chua said: “If we really look at it in a proportionate way, it could be a positive thing because a larger proportion of the cars are being shared, so it means it (PHVs)can serve more people.”
“Restricting PHVs to mitigate competition for COEs is like cutting off your nose to spite your face. The only way to meet Singaporeans’ transport needs, given controls on vehicle ownership, is to provide Singaporeans with viable alternatives to owning and operating their own car,” he said.
“It’s hard to imagine something that pushes middle-class Singaporeans towards buying a car as much as feeling that taxis and PHVs are both expensive and difficult to book.”
Market forces
Overly high prices could, however, inhibit the growth of the private-hire industry.
BlueSG’s Lim said the movement of COE prices is “an important factor for consideration in the cost equation” for car-sharing operators.
“Having in place an equitable market mechanism ... and policies that not only minimise environmental impact but also ensure long-term viability, are critical,” she said.
Tada – which does not operate its own vehicle fleet – is monitoring how costs affect its drivers.
“(Vehicle price increases) show up significantly in drivers’ cost and affects their margins, so it is a factor that is considered by potential drivers,” Chua said.
Lee said Tribecar has not been growing its fleet for a while: “We are victims of the situation.”
He also observed that ride-hailing platforms, too, are having a hard time finding vehicles.
“It’s the mechanism that is really at the core of why COE prices are so high now,” Lee said.
He does not, however, believe there is a need for setting aside a fixed allocation for shared vehicles.
“Market forces will be sufficient,” he said. “Think of the economic power of these 20to 40 (households) versus the one owner.”
Tribecar will look to grow its fleet when COE supply begins rising again, and Lee expects other players, including PHV fleet operators and taxi companies, will do the same.
Prof Ong of NUS noted that public transport availability should help keep costs in check, and ensure operators do not overexpand.
“Public transport has to be the backbone, and has to be affordable to more than half of Singaporeans,” he said, adding that such options have to be accessible and comfortable.
He warned that changes to the COE bidding system may lead to lower PHV supply, resulting in a spike in the price of private transportation overall.
“The way I look at the profile of users who are using PHV, they are really working folk between 20 and 35, who cannot afford to buy a car. They are already being priced out. Are we going to make their lives more inflationary?”
Curtailing the car population
A free market may be able to determine the most efficient ratio of ride-hailing and shared-car services in the market, but there are other considerations to the pricing of private transportation.
“The more people own, the more people use,” said Prof Ong. Curtailing the number of cars on the road must therefore involve a three-pronged approach.
“First is ownership, second is usage, and third is public transport. The three cannot be without each other.”
Prof Theseira said there are economic reasons why PHVs and taxis are not treated correctly under the existing COE system.
“There is an implicit assumption under the COE system that all vehicles in the same category impose the same traffic load on the system.
“But this is obviously not true for PHVs and taxis, which create a traffic load many times that of a regular private car due to their high utilisation.”
A distance-based Electronic Road Pricing (ERP) system – which would be possible under a new satellite ERP system slated to be phased in later this year – could place a surcharge on PHV or taxi mileage, or a general surcharge based on mileage.
Prof Cheah also believes taxing usage instead of ownership could be explored further, given the concerns over limited road space.
She co-authored a paper in 2014 that explored an alternative policy for private cars: a licence plate lottery system replaces the existing auction system to control vehicle population, and the lump-sum tax is transferred to a mileage-based fee.
As mileage fee increases, the paper said, vehicle usage first declines slowly, reaching the same level as that under the COE scheme at a mileage fee of S$0.50per kilometre. It then faces a sharper, continuous decrease as mileage fee increases from S$0.60 to S$1.30 per km.
Apart from adequate pricing, tighter regulation may also be worth considering if PHVs become more dominant in the transport landscape.
A “light-touch” approach towards service standards is currently employed under the point-to-point (P2P) sector regulatory framework – to “allow market forces to drive service delivery and innovation”.
The fleet of vehicles for P2P transport has since outstripped the total taxi population at the latter’s 2014 peak. Yet, there have been complaints over wait times and high prices.
Prof Theseira noted that many PHVs are not utilised purely for the P2P trade.
“This highlights a basic regulatory issue with PHVs – they are convertible at will to being a purely private car, and they can be used as a private car at any point,” he said. “Treating them differently for COE purposes would also come with a need to regulate their conversion and use as a purely private car.”
Tada’s Chua, however, noted that Singapore is already one of the most regulated countries to operate a ride-hailing service. “Alongside the licensing regime, there are also regular engagements with the government, where mobility issues are talked about as an industry,” he said.
Instead of focusing on the proportion of cars in the market, Chua believes other factors should be considered – with time spent commuting being the most important.
Iswaran said in his ministerial address last month that private-hire vehicles are a relatively new development.
“The P2P regulatory framework, for example, only commenced in 2017 – and Covid-19 has caused some disruption in the market,” he said. The government is studying this further to ascertain the effect of such vehicles and if there is any impact on the market, he added.
System reboot?
Criticisms of the COE system are nearly as old as the system itself.
In March 2015 – when COE supply was increasing – Associate Professor Chu Singfat of NUS wrote a column in The Straits Times calling for more to be done to smoothen the COE supply.
“In the 25-year history of the COE, there have been two roller-coaster cycles in the premiums,” he said in 2015. “Another peak in premiums is expected in about five years, and that can be avoided by a bold management of COE supply. The earlier that is implemented, the less painful it will be for all stakeholders.”
Eight years on, the COE market is once again on another “roller-coaster” cycle.
The difference is that this time, demand is also coming from players who provide technological solutions that could reshape the dynamics of car ownership in Singapore.
This new dynamic may mean a change is needed in Singapore’s traffic management strategy – and the sooner that is done, the better.
Prof Theseira noted that a distance-based usage policy is unlikely to be considered for some years, as the government has indicated the first use of the new ERP system would be to replicate the existing system – without the distance-based component.
“By that time we will, anyway, be in the high COE supply part of the cycle,” he said. “This is when people stop bothering to come up with ideas for COE policy reform, as it then starts to hurt their interests if these reforms are implemented.”