Singapore's auto sales could contract from 2017

Hitting a 137,597-unit peak level seen a decade ago now unlikely.

Total vehicle sales in Singapore will begin a period of decline from 2017 to 2020 on the cyclical nature of the market, which is driven by age limits on vehicles and the Certificate of Entitlement (COE) system, said BMI Research.

"We forecast total vehicle sales in Singapore to begin a period of decline in 2017, as a cyclical downswing and a shift towards the used car market take over," it said.

The vehicle market in Singapore follows a cycle which is driven by the age limits placed on vehicles and the COE system.

According to BMI, the 48.2% growth in total vehicle sales forecast for 2016 is largely due to the de-registration of those COEs reaching the end of validity, followed by the purchase of new vehicles and COEs.

Thereafter, the research house sees the slowing of replacement sales and the threat of a slowdown in nearby China will prevent total vehicle sales from reaching their peak levels of 137,597 units achieved in 2006 over the remainder of our forecast period to 2020.

"The government's drive to reduce congestion and carbon emissions will also dampen vehicle sales. The government is geared towards a car-light nation and is investing heavily in public transport, such as rail," it said.

Here's more from BMI:

In terms of segmentation, the revision of the COE system in 2014 has helped mass market brands claw back market share, which they had lost to their premium segment counterparts. The revision consisted of an additional horsepower criterion for the lower priced Category A COEs, which resulted in most luxury brands being excluded from the category. This has helped increase the demand for volume brands in the Singapore automotive market. We expect these dynamics to remain over the course of 2016, as the quota of COEs continues to expand due to the rising number of cars nearing their 10-year validity period, which will in turn keep demand for volume brands strong.

We have revised down our forecast for passenger vehicle sales to growth of 50.0% in 2016. This is still a rapid increase but data for the year-to-date suggests it has not been as robust as we had first expected. Passenger vehicle sales are experiencing strong growth due to vehicle replacement as older cars that are reaching their 10-year COE validity period are scrapped, their COEs de-registered and new ones bought.

We forecast the replacement process to peak in 2016 with passenger vehicle sales growing to 92,268 units by year-end before beginning a period of decline in 2017 that will last for the rest of our five year forecast period to 2020.

In contrast, we have revised up our forecast for commercial vehicles to grow 17.0% in 2016, before the cycle of decline also impacts this segment from 2017 onwards.

The Early Turnover Scheme, which enables owners of diesel-powered goods vehicles to de-register their existing vehicle early to replace with a new one, has been successful in driving sales in the segment. Sales for the first 10 months of 2016 were already higher than the whole of 2015. The prevalence of e-commerce in Singapore's economy will also provide support to the commercial vehicle market through the light commercial vehicle segment, which is seeing a spike in demand for delivery vehicles.