Revamping COE Bidding System

Mr Gan Thiam Poh asked the Minister for Transport why LTA is not in favour of revamping the existing COE bidding system to allow (i) only the applicants to bid for themselves; and (ii) Pay-As-You-Bid by applicants.

The Senior Minister of State for Transport (Mrs Josephine Teo)(for the Minister for Transport): Mdm Speaker, both issues raised by Mr Gan were suggested as possible ways to ease COE prices in 2013 and the Land Transport Authority (LTA) had consulted extensively on them. Views on banning dealers from bidding for COEs were mixed.

Some felt that dealers provided a convenient service when bidding on buyers' behalf. This approach also allowed the cost of the COE to be financed together with the vehicle cost in a loan package. Others noted that banning dealers from bidding would not lower the price of COEs as the dealers' bids were ultimately a reflection of the underlying demand and buyers' willingness to pay. Some also pointed out that a ban on dealers bidding could be easily circumvented, for instance, by the buyer providing personal details to the dealer to bid in his name.

On the other hand, arguably, having a wider pool of bidders can make the auction and price discovery process more robust. On balance, the LTA decided to maintain the current system which gives vehicle buyers the flexibility to bid for themselves or have dealers bid on their behalf.

The Pay-As-You-Bid model was also consulted on. It should be noted that, empirically, 80%-90% of the successful COE bids are typically clustered within 5%-10% of the final COE price. This suggests that the current bidding model is fairly robust, with not many extreme bids. In fact, experts in auction theory agree that the current system, which prices all COEs within a category uniformly, incentivises bidders to bid their true valuation. It also levels the playing field between the well-informed and the less-informed participants and it is the most efficient allocation mechanism.

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In contrast, under a Pay-As-You-Bid system, bidders are likely to have to spend more time and transactional costs monitoring the bidding and adjusting their bids incrementally.

That said, whatever the debate on the merits and demerits of different auction models, we should acknowledge the fact that COE prices are fundamentally dependent on demand and supply.