Car Loans: The Bigger Picture

Just three years after instituting a limit on car loans in Singapore, the Monetary Authority of Singapore (MAS), eased up on those same restrictions. Retailers and consumers alike, have been gunning for this relief of pent up demand for at least a year now and it seems like their prayers have finally been answered somewhat.

Proponents for the relaxation of rules are numerous; to buoy an inadequate public transport system, to help families with young children and the elderly, to provide mobility to a growing grey population, and even to balance out social inequity.

The new rules will make the acquisition of a car easier as there is a smaller upfront capital outlay required and the balance can be repaid over a longer period of time. The burden undertaken to purchase and use a car is amortised over a longer period, thus enabling aspiring car owners to manage their finances more flexibly. Dealerships and consumers rejoice, it’s a win-win for everyone!

Or is it?



One must first understand that all practical governments (especially in Singapore) make decisions that are far sighted with regards to policy and direction. For every policy, scheme or program, there is an overarching socio-economic objective that the government hopes to attain that is (usually) beyond the comprehension of the average citizen. The higher agenda will always take precedence over the vociferous demands of individuals. No, this policy shift is NOT to encourage private car ownership, if at all. To postulate the true agenda of this policy shift, we have to first analyse its effects.

Boosting The Economy



In a year where GDP growth is expected to be sluggish, easing the loans policy is a simple way to boost the economy by getting people excited. At the most fundamental level, the role of the government is to ensure that the country registers economic growth while balancing the needs of the people.

Due to a glitch in the formula determining the number of C.O.Es released a decade ago, an inappropriately large number of new vehicles were allowed on the road that will be due for de-registration over the next 2 years, flushing the market with C.O.Es. To keep prices relatively stable, the easing of rules is to spur demand for both private (i.e. individual) and corporate (private hire car companies) to jump in and maintain C.O.E prices at a premium.

The anticipated increase in C.O.E supply is timely coupled with the relaxation of loan rules to entice buyers to get out there and spend. Besides housing, car purchases are the next big ticket item for most individuals, with associated vehicle taxes constituting a whopping 12% of government revenues! Vehicle demand is relatively inelastic given that supply greatly outstrips demand, hence any changes to C.O.E supply or price will be quickly registered in GDP figures. If nothing else, at least the streets will be filled with shiny new cars to wow the influx of tourists and dignitaries that Singapore hosts every year.

Funding for Government Schemes


(Photo: Screenshots via SPH Razor/YouTube)

Our tax money goes a long way to finance the cavalcade of government initiatives that are meant to benefit the country and her citizens. The more taxes we pay, the more flexibility the government has to develop it’s ideas. Like it or not, changing the rules is a simple and effective way to keep C.O.E prices high.

There are two contributing factors. The first is the increase in number of people who are able to afford a car because of increased financing available. The second is the operation of app-based private hire services like Uber entering the market to compete for C.O.Es with the public. As explained in our previous article, this will result in more and more people partaking in this quasi-business model.

With corporate entities and individuals (for commercial and personal use) competing for limited C.O.Es, it can be expected that those considering a buying vehicle for private use would be priced out accordingly. An increase in C.O.E supply maintained at premium prices leads to higher government revenue that can go towards increased social spending or other government schemes.

The Share Economy – Car Pooling



The proliferation of private hire taxis (e.g. Uber and Grab) and ancillary service providers (e.g. ETHOZCab) have caused a paradigm shift from traditional business models to a share economy. Such services would essentially foster a carpooling culture (masquerading as a taxi service) which, thus far has failed to gain traction among individuals on any significant level.

This development works perfectly for the government to achieve a car-lite society in an indirect way. The new rules will incentivize private hire players to bid more aggressively and weed out the retail buyers waiting for a price drop, effectively replacing personal cars with private hire ones. The number of vehicles on the roads may not change much, but the percentage of cars providing taxi services will increase boosting travel options for all.

Public Transportation Network Ver. 2



The adequacy of Singapore’s traditional public transportation network has long been a contentious point of debate. Our MRT system, the poster-boy for public bashing, is a hit-and-miss where even new lines are disrupted due to technical faults. Our bus system had been fined previously for being overcrowded at critical times. Regular taxis too, have long been a bone of contention between the people and authorities, being accused of only plying certain routes and timings that are most profitable while ignoring the others completely. By tacitly allowing app-based private hire numbers to grow, it creates a natural incentive for the existing taxi oligopolies to up their game, to innovate, improve service levels and move with the times – something that even the Competition Commission of Singapore, our nation’s champion of free competition has looked at.

With this welcome move to review car financing regulations, the government inadvertently provides a complementary solution to the troubled public transport network, one that requires minimal hand-holding from them, all while re-directing negative public sentiment at private hire service providers for driving C.O.E prices up. In essence, it is democratising taxi services and letting the situation play out, leaving the outcome to free market forces while portraying a positive image to the public. It’s a brilliant strategy!

So, after all that has been said, what is the true purpose of this policy shift? The real answer to the government’s true intent remains multi-faceted, and one has to look beyond the short term effects to gain an appreciation of the larger picture.

The government is looking at the long term to ensure the right policies and measures are in place, for the greater good of the country. It is looking to shift private ownership to a shared model of car ownership, in order to address the deficiencies in public transport. In doing so, it conveniently deflects negative press and uses privately owned vehicles to plug the gaps. One thing for sure, their overall aim is one of a car-lite society, something that may seem counter-intuitive to their recent policy change on paper at first.

Like it or not, this is not the era of affordable vehicles, it is the advent of the share economy. Those who will not or cannot stomach the high cost of ownership will have to get onboard the proverbial bandwagon albeit a shared one. Our government’s pragmatism practically guarantees that the common man is not the primary beneficiary for this revised scheme – one would be foolish to assume so.

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