AN INDUSTRY STRETCHED THIN
With elevated COE prices making car ownership increasingly expensive, more individuals and businesses have opted to lease instead of buying a new car, said Mr Kenneth Lee, honorary treasurer of the Vehicle Rental Association (VRA).
While this fuelled strong demand for long term leasing, the current environment of high interest rates and elevated COE prices has been a “tough test” for the industry.
Mr Lee said some firms expanded too aggressively in recent years by taking on excessive debt.
“They often prioritised growing their market share over making sure each car was actually profitable, disregarding the COE price,” he said.
“When demand drops or loan costs rise, these business models become very risky.”
Veteran operators said they were shocked when they first heard that newer entrants such as Autobahn slashed rental prices after entering the market over the past few years.
Mr Chiam Soon Chian, chief operating officer of private hire vehicle rental firm Lumens Group, said many of these companies emerged during “boom time” after pandemic restrictions were lifted.
They not only undercut Lumens in terms of rental rates, but had also poached about 10 of its staff members, offering pay bumps of up to 40 per cent, said Mr Chiam.
He said that the prices that they were offering were less than S$100 a day, but this was unrealistic, as it was on par with the rental rates of countries such as Japan and Australia.
“But cars (in those countries) can cost only S$30,000, but in Singapore it costs about S$180,000 now,” he said.
“So when you do a ratio of the rent to the cost itself, it is just not sustainable,” he said.
He added that Lumens, which began operations in 2014, has been pivoting to other offerings such as workplace pickups and school pickups to gain an edge over the competition.
Mr Ng Chee Haw, a general manager at rental firm Bolt Car Leasing, said that the COE cycle makes it hard to gauge profits.
“Many operators focus on short term cash flow and may appear profitable initially, but if COE prices fall in future years, the resale value of their fleet could drop significantly, reducing or even eliminating actual profits,” he said.
“This is something many new players underestimate.”
As to whether recent reports of investigations into money laundering activities should be a concern, Mr Lee from VRA thinks that such activities are the exception rather than the norm.
“We see these as isolated cases that do not reflect how the rest of the industry operates,” he said.
“Most rental companies in Singapore are legitimate businesses, where many are family-run or established corporate firms that follow the law strictly … We support the authorities’ efforts to remove bad actors, as this protects the reputation of honest operators.”