Record COE Prices - Again

Just saw an online article reporting that COE prices have just hit a 14-year high.  It now costs more to buy a COE for a car of 1600cc or greater engine capacity than to buy 1 kilogramme of gold.  My first thought when I read the article was this - If there were derivative instruments based on COE prices, I'd be shorting them, since talk about 'prices can only go up' are fairly good indicators of bubble tops.

To me, this is a somewhat tragic situation, for several reasons.

Firstly, given global crude oil production patterns, depletion will likely result in shortages worldwide in less than 10 years. It will not surprise me to see the government banning the use of cars that run on petrol within this period of time.  What this means is that those who paid for the COE now will basically have less than 10 years of usage for their cars if they had originally planned not to trade-in for newer models within 3 years.

Secondly, when these people realise how much they have overpriced COEs, there will bound to be a political backlash against the PAP government.  While one can argue that the government forced no one to bid up COE prices, the design of the current COE system is such that fair-minded people can reasonably suspect that the government is not only interested in limiting the car population but also in maximising revenue.  If the government were solely interested in suppressing car demand, all it has to do is to make a simple change in the car financing rules - Get MAS to bar financial institutions from including the COE price into the car loan quantum. Once such indirect financing for COEs is not available, one can be 100% sure that the bidding behaviour will change overnight, and prices will fall precipitously.

The reason why this would work is because car buyers have a tendency to think only in terms of monthly payments, much like those sub-prime borrowers in the USA.  Requiring them to pay for the COE upfront will price many of them out of the market, especially those young people who make $3-4K only a month.  This, in turn, will lead to lower COE prices as the artificial demand is removed.  The logic applies even if car dealers are still allowed to bid for COEs under the new system.

But I guess I can't stop people from willingly becoming victims of the government's policy errors.  I just hope that I won't have to bail them out.