By Wilson Wong, Consultant, Frost & Sullivan Automotive & Transportation Practice, Asia Pacific

Singapore is probably one of the most expensive places in the world to own a car. This is due to the imposition of regulatory measures such as the Certificate of Entitlement (COE), high custom duties, and road usage charges such as Electronic Road Pricing (ERP). The country also has one of the most regulated automotive markets in the world due to its geographic constraints and the need to regulate traffic density.

In Singapore, a potential car buyer has to secure a COE before registering a car. Many car distributors in Singapore, as a service to customers, offer packages that include the COE. ERP is an electronic pay-as-you-use system of road pricing. It is designed to be fair, as motorists are charged when they use roads during peak hours.

Despite these measures, with a per capita GDP of approximately US$30,900, demand for automobiles is very high. Singapore’s strong economic performance and lower COE prices (vis-à-vis previous years) kept passenger car sales at around the 100,000 mark from 2005 to 2006.

2007 is also proving to be a watershed year for the local automotive scene, as it marks the arrival of Formula One, the world’s foremost racing event. This article examines the direction of the Singapore automotive market in 2007 and beyond.

Trends in the Passenger Car Market

Singapore is essentially a passenger car market, with 89 percent of vehicles falling into this category. This market is also largely dominated by Asian vehicle makers, which are largely represented by their authorized distributors: Toyota (Borneo Motors), Honda (Kah Motors), Nissan (Tan Chong Motors), Mitsubishi (Cycle & Carriage which also distributes Mercedes-Benz, Citreon, and Kia), and Hyundai (Komoco Motors). Most vehicle makers prefer to rely on their local exclusive distributors to leverage their existing networks and market know-how.

As evidenced in Chart 1, Singapore passenger car sales grew at a compound annual rate of 11 percent from 2003 to 2006.

This robust growth rate is driven by Singapore’s strong economic performance from 2004 to 2006, as indicated by the rising GDP growth rates shown in Chart 2.

Singapore’s passenger car sales declined marginally, by approximately 3 percent, from 2005 to 2006. This decline is attributable to tighter COE quota restrictions implemented in May 2006.

As indicated in Chart 3, the COE quota system has tightened, with the number of available COEs falling from 144,749 (May 05 to Apr 06) to 127,021 (May 07 to Apr 08). The COE quota revision is one of the steps taken by the Singapore government to cool demand in a burgeoning passenger car market.

In Singapore, ERP rates have risen over the past year. The latest price revision (an increase of 50 cents) was imposed on May 7, 2007 at 5 gantries for all classes of vehicles. ERP rates are envisaged to follow an upward trend for the rest of 2007, which is in line with government measures to reduce road usage (particularly in the Central Business District). All in all, the Singapore authorities have the delicate task of trying to balance the rising demand for cars while trying to curb road usage.

The Toyota Corolla Altis is expected to retain its position as Singapore’s best-selling passenger car, having occupied the top spot in both 2005 to 2006. Nonetheless, it is expected to experience a slight dip in sales for 2007, due to increasing competition from rival models such as the Mitsubishi Lancer and the Nissan Latio.

In 2006, the Toyota Corolla Altis experienced a 14 percent decline in sales vis-à-vis the previous year. This model’s weaker performance could also be attributed to the relative age of its design. This situation is exacerbated by the fact that Toyota will not be launching a new Altis model until 2008.

The Nissan Sunny 1.6 (the second best-selling car in 2006) is also gripped by similar woes. It has an ageing design in a highly competitive market, and faces a constant supply of new car models from competitors. However Nissan is expected to retain a strong grip on the passenger car market, with the robust performance of its Nissan Latio 1.5 model and the 2006 launch of the Nissan Sylphy. The Nissan Sylphy is much larger than the car it ostensibly replaces, the Nissan Sunny. This new model, given its relative size, is marketed as a vehicle somewhere between the Sunny and the Cefiro.

The Honda Civic continues to enjoy high popularity among Singapore drivers. Its continued popularity in 2007 is to a certain extent assured by the successful launch of the new Civic 1.6 and 1.8 models in 2006. The Honda Civic 1.8, with sales of 3,682 units, was the sixth best-selling passenger car in Singapore.

2007 could be the year in which the Hyundai Avante consolidates its position. The model, which was designed to challenge the dominance of the Toyota Corolla Altis, sold a considerable 929 units in 2006, the year of its launch. The technologically sophisticated and economically priced Avante is a vast improvement over its predecessor, the Elantra. Assuming it can sustain its current sales momentum, the Avante has a very good chance of making it into the top 20 best selling passenger cars in Singapore by the end of 2007.

The Singapore government is currently making a concerted effort to strengthen the existing public transportation network, by completing the circle line for the MRT (Mass Rapid Transit) train system. It has also recently approved plans for the S$12 billion (approximately US$7.8 billion) Downtown Line, which is scheduled to be completed by 2018. This extension will add a considerable 40 kilometers to the existing MRT, with most of the new stations located underground.

The Downtown Line will have 11 interchange stations with existing lines and the upcoming Circle Line, as well as 22 other stations. With full completion, an average daily ridership of 500,000 is expected, in addition to the 1.4 million daily passenger trips on the MRT now.

This drive to augment the existing train system ties in with the government’s efforts to limit road usage and to promote more extensive use of the public transportation system. With more extensive train coverage, it is hoped that more people will park their cars at MRT stations and take the train into the central city.

The government has also spared no effort in strengthening the existing road infrastructure. Since 2001, the Land Transport Authority has begun work on the 12-km Kallang/ Paya Lebar Expressway (KPE) that will stretch from the East Coast Parkway (ECP) in the south to the Tampines Expressway (TPE) in the north-east. This expressway is being built at an estimated cost of S$1.8 billion (roughly US$1.2 billion). It includes about 9 km of tunnels, which will make it the longest underground expressway in South East Asia.

The pressing need for a more extensive road infrastructure is driven not only by the rising number of vehicles on Singapore’s roads, but is also meant to deal with the anticipated boom in Singapore’s population and the subsequent increase in the number of vehicles. The government plans to raise the population from its existing 4.4 million to 6.5 million over the next 30 years, most probably through attracting a sizeable pool of skilled immigrants.

2007 undoubtedly marks a significant milestone in Singapore’s automotive history, as local tycoon Ong Beng Seng sealed a Formula One racing deal for five years with F1 Supremo Bernie Ecclestone, President and CEO of Formula One Management and Formula One Administration, often called the "F1 Supremo". The event is expected to bring in annual revenues of S$120 million (approximately US$78 million) and give Singapore much-needed buzz and glamour. A world-class event like F1 racing, with more than 500 million viewers worldwide, will enable normally staid Singapore to better position itself as a vibrant global city that is abuzz with high-quality entertainment and events.

However, from a vehicle maker’s viewpoint, what are the implications of F1’s arrival? For one, it could generate higher interest in high-performance vehicles such as Porsches, Ferraris, and Lamborghinis. Currently, the Porsche Club of Singapore has only about 150 to 160 members, despite the fact that there are close to 1000 Porsches in Singapore. With the arrival of F1 racing, more Porsche owners may join the club to acquire the skills needed to fully exploit the capabilities of their vehicles.

Demand for vehicles in this exclusive segment, which currently comprises less than 5 percent of the car population in Singapore, is also expected to rise. This increasing demand for high-performance luxury cars is driven by the rising number of millionaires in Singapore. Towards the end of 2005, Singapore had approximately 55,000 high-net-worth individuals, with assets worth US$260 billion.

Despite its relatively low vehicle sales, Singapore still offers considerable growth potential for vehicle makers. This is underscored by the fact that the Singapore passenger car market posted a robust compound annual growth rate of 11 percent from 2003 to 2006.

The factors driving demand for vehicles in Singapore in 2007 are:

While the above factors are expected to drive industry growth in 2007, adverse economic shocks such as a spike in crude oil prices or a worldwide economic slowdown would harm automotive sales in Singapore.

Nonetheless, from a long-term perspective, Singapore remains a fairly attractive market to vehicle makers, particularly in the mid-sized car segment. It offers a stable political environment with sustained economic growth and an increasing pool of immigrants.