WITH the COE Category A premium for small cars at an all-time high of $73,501, some distributors of these models with engines of 1,600 cc and below are bracing themselves for a rough ride ahead.

"It is definitely more challenging to sell any Cat A cars as affordability has been affected," said Desmond Wong, general manager for marketing at authorised Toyota distributor Borneo Motors Singapore.

Toyota was Singapore's best-selling brand for nine straight years before it was overtaken by BMW and Mercedes-Benz in 2011 as the COE quota shrank and premiums skyrocketed.

Neil Fiorentinos of BMW, Singapore's top make, agrees. "The reduced Cat A COE quota and the resulting rise in COE premiums, as well as the increased number of product offerings in the market place, has made the competition in this category even more challenging," said Mr Fiorentinos, who is the managing director of BMW Group Asia.

The group's current Cat A range includes the BMW 116i and 118i, as well as the entire Mini line-up - all of which have 1.6-litre engines. The range could widen further if the 1,600cc version of the popular 3 Series sedan arrives early next year. BMW declined to comment but if it does come, there is no doubt competition in Cat A will intensify as it chases its traditional rival, Mercedes-Benz.

Currently, the top 1.6-litre luxury model wears a three-pointed star on its grille. The Mercedes-Benz C180K accounts for an estimated one out of every seven Cat A passenger cars registered so far this year.

But not everyone agrees that Cat A models are harder to sell now that the premium has hit a record because it is still roughly $20,000 lower than Cat B, which is currently at $94,502.

"People do see value in buying a Cat A model because of the cheaper COE, and some 1.6-litre cars these days are well-engineered enough to offer the performance of a 2.0-litre model," says the general manager of a European make.

One brand that is also unfazed is Volkswagen.

"The demand for Cat A models remains steady, especially since the price gap between the Cat A and Cat B COE premiums is still over $20,000," said Zeno Kerschbaumer, Volkswagen Group Singapore's managing director.

"Many buyers recognise that there are some Cat A cars available which offer all the advantages of Cat B models at a significantly lower price, and it is these cars that are doing well now." In fact, Volkswagen, which is launching its 1.2-litre CrossPolo small hatchback next week, is seeing more customers going for the higher-end versions within a particular model range.

For BMW's Mr Fiorentinos, what attracts buyers of his BMW and Mini models in the Cat A COE range are the quality and design. "They provide our customers with great value in terms of driving experience, design and equipment level," he said.

Borneo Motors' Mr Wong also believes first-line volume brands can weather this hurricane of high COE premiums. "As COE prices rise, the market is turing to more 'premium' brands, not just luxury brands per se but also more premium mass-market brands like Toyota," he said. "With Cat A car prices at a record high level, consumers will look for a strong brand that delivers quality, reliability, good aftersales service and strong resale value."

So it is unlikely that high Cat A premiums will discourage motor distributors from bringing in new Cat A models or result in a dearth of choices in the future.

"Despite the reduced COE quota and the resulting increased COE premiums, we will continue on firmly with our product portfolio expansion plan to accommodate our customer demand and requirements," said Mr Fiorentinos.

Volkswagen's Dr Kerschbaumer said the German mid-range brand will continue to launch new cars to give buyers the widest possible selection of models. He said: "With today's high COE prices, customer expectations of Cat A cars are constantly evolving and we will continue to evaluate which models will suit their needs best."