The projected growth of the car population is optimistic and there is little doubt that the demand for automotive parts and accessories will increase. The total number of motor vehicles on Singapore roads has been increasing over the past three years on an average annual rate of 4.25%. This growth pattern is anticipated to remain unchanged for the next three to five years. These developments certainly bode well for U.S. business for the foreseeable future.
Recent investments reflect the importance of Singapore as a major automotive components manufacturing base, especially for the production of higher value-added engineering systems. Many leading multinational corporations (MNCs) have also set up international procurement offices to source high-quality and competitively-priced automotive parts. They have established their operational headquarters in Singapore to coordinate their manufacturing and distribution operations for the region.
After reaching ten years of age, cars in Singapore must be scrapped or face hefty road taxes. Those owners who get rid of their cars are entitled to receive a lump-sum benefit under the "Preferential Additional Registration Fee (PARF)" plan introduced in 1975. The sum, determined by engine capacity, may be used to offset the registration fee of a new car, but it is not applicable to cars previously registered outside Singapore. Those who keep their cars more than ten years must pay a surcharge on their road tax of between 10-50%.
As a result of the high automobile turnover, there is very small market for remanufactured/reconditioned cars and auto parts. There are very few reconditioned automotive parts and supplies dealers because new parts are preferred. Since there is no domestic production of automobiles in Singapore, imports must meet total market demand.
The demand for accessories, car-care products, prestige items, and new spare parts is also high as vehicle owners maintain their cars in top condition. Singapore also serves as the primary distribution center for automotive products in Southeast Asia.
The Singapore automotive market departs from purely market-driven supply and demand restraints as it is also driven by quota with the size of the quota pre-determined by the Singapore Government. In an attempt to prevent traffic congestion, Singapore government authorities decide how many new vehicle registrations to allow and make a corresponding number of Certificates of Entitlement (COE) available by auction.
Two factors go into the decision of how many new cars are to be registered. The number of vehicles "scrapped" by previous owners is a yardstick used to determine the number of new cars that will fill these newly-formed spaces. For every car scrapped by an owner, a new car may be registered. The other factor is the Government's set “growth allowance”. The Government allows a net growth of 3.0% from the previous year.
The ten-year life-cycle for vehicles means that car owners will have to decide whether to keep their car after the tenth year and pay the enormous COE or scrap their car and purchase a new one as well as COE. This policy ensures a certain level of passenger car turnover after each ten-year circle.
More cars will probably be allowed on the road as the government continues to build more roads and expressways and, where possible, underground roads as well. With the Electronic Road Pricing (ERP) in place since 1998, motorists are now charged for road usage in a more efficient manner. Traffic management is thought to be more effective with the flexibility to vary road usage charges at different time and places. As the ERP reduces congestion, the Government has allows more cars on the road. It is expected that in the next 10 years, one in five Singaporeans will own cars, against today's one in seven. By then, roughly 60% of all households will have a car.
The Land Transport Authority (LTA) has estimated that Singapore's roads could accommodate up to another one percentage point growth in COEs per year over the next few years as a result of electronic road pricing. This significant increase would work out to some 15,000 to 20,000 extra COEs over the next three to four years.
The LTA is now studying how to phase in additional COEs in order to take into account the proposed implementation of a next-generation satellite-based ERP system, which can be used not only to charge motorists for using the roads, but also have new capabilities to track the movements of vehicles. When implemented, the new system will enable drivers to receive accurate real-time traffic information, such as which congested roads to avoid, through a device installed on board their vehicles. The implementation of the new system will be at least a few years away from now. Once the new system is in place, more vehicles are likely to be allowed on the roads as the technology will enable the authority to manage at least one million vehicles on not only expressways and major arterial roads, but also all other smaller access link roads to buildings.
Given the optimistic projection for the growth of the car population there is little doubt that the demand for automotive parts and accessories will increase proportionately.