Three new Japanese sedans are expected to shake up the COE Category A market when they arrive early next year, just in time for a recategorisation of the small car segment
3 new models may keep Cat A COE buoyant SIZE MATTERSrnThe all-new Toyota Corolla Altis will be a bigger and more refined model than the current version. - PHOTO: REUTERS

THREE new Japanese sedans are expected to shake up the COE Category A market when they arrive early next year, just in time for a recategorisation of the small car segment.

The launches of the new Toyota Corolla Altis, Mazda3 and Honda City are likely to keep the Cat A COE premium relatively buoyant despite the exit of luxury models, which had been blamed for pushing up prices. Still, most dealers foresee at least a 10 to 15 per cent fall from current certificate of entitlement levels.

From February next year, the engines of Cat A cars not only have to be limited in displacement to under 1,600 cc, but their power cannot exceed 97 kW or 130 hp.

This means 42 models currently in Cat A are affected and will have to move over to Cat B (for cars above 1,600cc), including luxury rides like Singapore's top model last year, the Mercedes-Benz C180, and the BMW 316i. There will be about 100 models in the new Cat A.

With their bigger profit margins, distributors of high-end cars were said to have driven Cat A COE premiums to an all-time high of $92,100 in January this year. The premium has since slipped to $72,609 now.

"Next February should see the return of bread-and-butter models from those Japanese and Korean brands which have been priced out of Cat A for over two years," said the sales manager of a mass-market dealership. "There are many prospective upgraders who have been waiting on the sidelines because of high car prices and they should be returning to the market next year."

He added that after the new rules kick in, he expects the Cat A COE premium to drop to the $60,000 level.

"Also, with the loan curbs still in force, affordability is an issue when the COE premium is high. So when Cat A softens, we will see more people coming back into the showrooms," he said.

But will the influx of these buyers keep the Cat A COE premium where it is today?

"No, premiums should soften despite the fact that there will be strong demand," said the sales manager. "This is because this group of buyers is not in the same league as those who buy Mercedes-Benz or BMWs. While they are interested in buying a new car, they are not prepared to pay a high price."

The general manager of another mass-market dealership agreed.

"Those who buy our cars are relatively conservative," he explained. "The moment the Cat A COE goes up too much, they don't want to buy anymore. They can probably still afford it but they just refuse to."

If and when the Cat A COE premium falls, what is stopping those buyers of small Mercs and BMWs from looking at the Japanese and Korean offerings instead?

"Some of them may consider a Toyota or a Honda, but most of them won't," said the sales manager. "There is this thing called branding and prestige and for them, it does not include a Japanese volume model."

The all-new Toyota Corolla Altis will, however, be a bigger and more refined model than the current one, which costs about $120,000 now. The exterior looks like the present Camry mid-sized sedan, while the brand new interior is said to be very roomy because its wheelbase has been lengthened by 100mm to 2,700mm. The 1.6-litre engine is mated to a seven-step continuously variable transmission instead of the old four-speed automatic gearbox.

The Thai-made Altis has traditionally been Toyota's best-selling model here. It was the Republic's most popular model from 2002 to 2006. After dropping out in 2007, it remained in the top three until after 2010 as the COE quota contracted substantially. The model is expected to be launched in January.

The new Mazda3 is slated to arrive in the first quarter of 2014 from Japan. This 1.5-litre model will feature the familiar SkyActiv technology, which combines efficient engines with a smooth transmission in a lightweight but strong body.

As for the new Honda City, it is scheduled for a Q2 introduction here. It has a new platform and new continuously variable transmission (from a five-speed auto previously) but retains its existing 1.5-litre engine.