COE explained: how the vehicle quota sets the price of a car

Most countries manage car ownership through cost: registration fees, fuel duty, annual tax. Singapore manages it through quantity. The Vehicle Quota System, introduced in 1990, fixes the number of vehicles that may be registered, and the right to register one is sold at auction. The price is not set by policy. It is whatever the auction returns.

The quota comes first

The Land Transport Authority decides how many Certificates of Entitlement to release, working from a target rate of growth for the vehicle population and from the number of vehicles being taken off the road. When the target growth rate is zero, as it has been for cars and motorcycles since February 2018, the supply of new certificates is essentially the supply of deregistered vehicles. One car leaves, one certificate becomes available.

That is the mechanism worth understanding, because it explains the volatility. Deregistrations arrive in waves, because vehicles registered in a boom year reach the end of their ten-year term together, so the quota rises and falls on a cycle set a decade earlier.

Five categories, and one that floats

Certificates are not interchangeable. Category A covers cars up to 1,600cc and 130 brake horsepower, Category B cars above either threshold, Category C goods vehicles and buses, and Category D motorcycles. Category E is the open category: it can be used for any vehicle except a motorcycle, which is why it tends to clear at or above the dearer of the two car categories. A bidder who must have a particular car this month, rather than at some point, bids in E.

The auction is uniform-price

Bidding opens twice a month. Bids are ranked, the quota is filled from the highest down, and every successful bidder pays the same figure: the lowest bid that still secured a certificate. That figure is the quota premium, and it is the number published as the result.

The consequence is often misread. Because a high bid does not lead to a high payment, the premium is a clearing price rather than a measure of enthusiasm. It reports the point at which supply ran out.

Ten years, then a decision

A certificate runs for ten years from registration. At the end the owner either deregisters the vehicle or pays to extend, at the Prevailing Quota Premium, a moving average of recent results. An older car therefore does not become cheaper to keep as it ages; the cost of keeping it is repriced against the current market.

This is also why a Singapore car has a residual value curve unlike most markets. Part of what a buyer pays is a wasting ten-year asset, and the rebate on deregistering early is calculated from what remains of it.

What the numbers on this site show

The premiums charted here are the published results of every bidding exercise since January 2010, taken from the Land Transport Authority’s own dataset. They are the outcome of the last exercise in each month, which is the figure usually quoted. For the current exercise, the quota conditions and the rules as they stand, the authority is the source of record.