Supply and Demand

In Singapore, the government tightly restricts the number of cars on the road, and enforces this restriction through an auction system for car permits.

As people scrap or export their cars, the permits are recycled back to the government, which auctions them off every month in a reverse Dutch auction (so the lowest accepted bid is the price that applies for the whole auction).

Lately there’s about 2,000 permits on offer every month and 3,000 bids, so there’s plenty of demand to keep the price high. (These permits are famously expensive – at one point in the mid-90’s, it cost $110,000 to put a car on the road – over and above the 110% tax rate on cars.)

But the economy has been turning lately, and fewer people have been buying cars – so the supply of permits has stayed constant but demand has dried up. So, just as you’d expect, the price of permits is looking a bit shaky. Shakier than stocks, if that’s possible. In terms of sheer drop, they’re shakier than the shakiest of subprime-mortgage-backed securities.

The B-class permits (for cars over 1.6 litres – so the only sort of permit worth caring about, then) have dropped from over $8,000 to $4,000 in two weeks. The E-class open permits – down from $11,000 to $7,000. And the A-class permits, for cars under 1.6 litres…?

The LTA had 1,851 permits on offer, but only 1,852 bids. So once they swept through the bid stack, the final price was a bit of a shocker – down from $10,500 to $2.

Two dollars. Down from a peak for that class of $56,000 in the roaring days of 1996, just before the Asian crisis.

I like Pravda‘s take on this:

What is thought to be impossible in an open bidding system has happened: COE has crashed.

“Thought to be impossible in an open bidding system”? Have they not looked at stock markets lately?

Update: Just noticed, there’s some terrible writing in that Pravda excerpt (no surprise really). Why would they write “what is thought to be impossible”, when the whole bloody article says that it’s completely possible?

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One Response to Supply and Demand

  1. Mike says:

    If I recall correctly, the “impossible to crash” phrase was quoted by someone from LTA some time ago in a media article. I am still searching for the article to be more certain.

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