This article first appeared on Entrepreneur Asia Pacific, written by Founder and CEO of Carro, Aaron Tan.
Over the past decade, Singapore’s economy has been experiencing a steady boom–ushering in an era of affluence that it hasn’t experienced before. For instance, the wealth per adult rate rose by 5.3 per cent from mid-2017 to mid-2018, which has contributed to the number of millionaires and the ultra-rich living in the country to grow by 11.2 per cent and additional 1.1 per cent respectively. This rise in wealth is further evidenced by Singaporeans experiencing more wealth growth in comparison to previous generations–leading to many Singaporeans believing they are now better off financially than they were five years ago and are able to live comfortably with more disposable income.
Yet, despite their growing spending power, what’s typically been elusive for Singaporeans (even high-income earners) is car ownership, which–along with overall car sales–has dropped due to the costs associated with driving a car in the small city-state.
But, while Singapore’s world-class and comprehensive public transport infrastructure means that most people don’t need to drive to get around, nothing matches the freedom of driving a car at your own time and leisure. So, how can Singaporeans achieve that without being locked into the burdensome financial commitments of owning and maintaining a car.
Demand for Premium Goods on the Rise
According to Nielsen’s 2018 Changing Consumer Prosperity report, Singaporeans are increasingly feeling financially secure and are making premium purchases in personal electronics, apparel, home entertainment, meat and seafood, as well as cosmetics and jewellery. They are also confident about living more comfortably and buying items beyond necessities. The same report noted that local consumers are willing to splurge on products that provide superior function or performance–in addition to value adds such as being made from organic and sustainable materials.
Today, Singaporean consumers are no longer purchasing products solely to fill their basic needs. Instead, they are turning to products and services that give them more personalised experiences, namely those they can identify with and can offer them more exclusive elements, which aren’t typically available in the standard fare.
Going up the chain of affluence, one can see that Singapore has changed into a playground for the wealthy. For newer affluents, however, this goes beyond material goods; they are instead seeking more luxurious experiences. For these nouveau rich, it’s not just about owning items that carry hefty price tags, it’s also about how much value they believe that can get out of them.
Owning Better Experiences with Cars
While the demand for luxury goods is on the rise, Singapore has witnessed a fall in car ownership over the years. This has been partly due to the limited certificates of entitlement (CoEs) issued by the government, which is aimed to manage congestion as well as to improve environmental and urban sustainability in light of growing affluence in the country. This means that a vehicle’s cost goes well beyond its purchasing price due to high registration fees, road taxes and insurance–and that’s not even counting the monthly instalments when taking out a 7-year car loan.
To illustrate the situation, Singaporeans can expect to pay more than SG$106,000 for an entry-level sedan, whereas it might cost them over SG$180,000 for more luxurious makes. Because of all the external regulatory costs that retailers need to consider, this doesn’t seem like the huge gap. But, when you consider all the other elements that need to be factored in (such as vehicle registration, insurance and road tax), the overall cost of maintaining a car will balloon.
However, while general purchasing trends suggest that Singaporeans are becoming less price-sensitive, this is not the case for cars. According to a YouGov Omnibus that looks into consumer habits across Asia, higher-income earners in Singapore were more deterred by the cost of maintenance and the car’s depreciating value than those in the lower-income bracket. This alludes to the fact that Singapore’s affluent aren’t discouraged by the high cost of the car itself – rather they don’t want to commit to a long-term obligation that will only depreciate over time.
Upping Driving Experience without Hefty Commitments
It is not a surprise that car ownership and sales have plunged due to all the expenses considered. However, there is one way in which Singaporeans can still enjoy the experience of owning and driving a car (even for more premium makes) without committing to the costs of keeping it on the road: a subscription-based service for cars.
A trend that is rising fast worldwide and now in Singapore, car subscription services typically charge a flat all-in monthly fee for the bundled use of the car alongside insurance, maintenance and road tax. In some cases, the fees may also include roadside assistance. This model goes beyond normal rental services. Instead, the consumer will own the car themselves, although they have the added convenience of changing their vehicles on a regular basis (with the monthly rate depending on the car model).
With all the costs associated with keeping a car roadworthy lumped into the monthly fees, subscription-based services can serve to provide drivers with a way to own a car without needing to be bogged down with financial obligations that can be onerous in the long run.