What to do about old cars - the Singapore way

Given the increasing number of vehicles on the road each day, month and year, used vehicles are piling up at dealerships as car buyers purchase new cars. Unlike our southern neighbour who have found a way to reduce their stockpile of dilapidated vehicles, used car dealers are collapsing due to high unmoving inventories of old cars which are unable to find new owners. Due to our high import and excise duty structure, our old cars cannot be exported competitively.

Let's visit the scrapping system used by Singapore and see if we can apply a similar system.

(Extracted from AAS)

What to do with your existing car
Unless you're a virgin car buyer, or between cars at the moment, chances are you'll have an existing car to get rid of when you buy a new set of wheels. Disposing of it couldn't be simpler, but according to how much inconvenience you're willing to put up with, some ways will get you more money from your existing car than others. Naturally, it's typically the case that the more inconvenient the method, the more value you can get from your used car.

You have three main options: to scrap the car, to sell it or trade it in:

Scrapping your car
It might seem wasteful sending a perfectly serviceable car to the scrap yard, but let's be clear about one thing: 'scrapping' a car more often means deregistering it and then exporting it. Many of our cars end up in places like New Zealand, where second-hand car vultures get to feast on the remains of our automotive stock.

One of the reasons why we have a bumper crop of COEs at the moment is that the early scrapping of cars has been a rising trend. In fact, in the year 2000, a whopping 93,349 cars were scrapped, not a small number considering we only have around 400,000 passenger cars on the road. In 2001, 83,536 cars were scrapped, and in 2002, the number was 96,466. Look around the streets. The cars you see are mostly nearly new, or close to ten years old, with relatively few models from a couple of years ago.

Obviously, the scrapping route is a popular one for car buyers. This is largely because in many cases, there is simply no choice. Given how new car prices have fallen lately, most cars registered in the past couple of years are literally worth more as scrap than on the second hand market.

The Preferential Additional Registration Fee rebate system, which ensures that the Government will 'buy' back your car when you scrap it, was actually fairly generous up to May 2002, when a new PARF rebate system was introduced.

Here's how to calculate the scrap value of your car. You'll need to know the Open Market Value, the COE value and the exact age.

If the car was registered before May 2002, the amount you'll get back will vary according to how old it is.

Find the right age of your car, then multiply its OMV by the corresponding percentage to get your PARF rebate.

Then there's the COE portion of it. The Government will refund you the unused portion of your COE, pro-rated to the day. Keep in mind though that if your car is two years or younger, the COE rebate is capped at 80%.

So let's say we have a car with an OMV of $20,000, a COE of $40,000 and is just a day short of turning six years old. The PARF rebate is 120% of $20,000, or $24,000, and since there are almost four years left on the COE, the COE rebate is roughly 4/10 x $40,000, or $16,000. So the total scrap value of the car is $40,000.

From the schedule above, one thing is apparent. The best time to scrap a car is just before its 5th birthday, since you get 130% of OMV right up till then. And given that ARF was 140% at the time, scrapping a car by the fifth year effectively meant paying just 10% of OMV in upfront taxes.

The current scheme for PARF rebates is somewhat less generous.

In such a case, the ARF paid on a car with the same $20,000 OMV would have been 130% of $20,000, or $26,000. Theoretically, scrapping it by the sixth year would net the buyer just 70% of that, or $18,200, a steep drop from the $24,000 of the older system.

In any case, if your car is two years old or older, you'll benefit from the old system. One thing worth keeping in mind is that the scrap rebate will be given to you as a PARF certificate which you can only use to offset the upfront taxes on a brand new car. The LTA will not pay you in cash for scrapping your car.