Lotte Rental drops plan to enter Korea’s secondhand car sales market

Lotte Rental Co., South Korea’s largest car rental firm, has dropped its plan to enter the domestic used car sales market. Instead, it will strengthen its used car rental and commercial vehicle leasing businesses, Chief Executive Choi Jin-hwan said.

At the Lotte Rental CEO IR Day held in Seoul on Thursday, the CEO said the company is redirecting its resources to ramping up areas where it is already leading its rivals.

“We aim to strengthen our market dominance and enhance profitability at our existing businesses,” Choi told the investor relations session.

Under its new strategy, he said Lotte will expand its used car rental and commercial vehicle leasing businesses; strengthen the short-term car rental and car sharing business; explore overseas business opportunities; and enter the robotics market via its general rental business.

Specifically, the company plans to reshuffle its rental products, reorganize sales channels and build related infrastructure by the end of July.

It also plans to expand its commercial vehicle lease program via its affiliate Lotte Auto Lease Co. in line with the increased rollout of electric vehicles in the segment.

KOREA’S USED CAR MARKET COOLS

Last year, Lotte and Hyundai Motor Co. announced plans to enter the country’s secondhand car sales market, currently estimated at 30 trillion won ($23 billion) in terms of annual transactions – double the size of the new car market.

The government has for years banned big companies from selling secondhand vehicles, citing the need to protect smaller used car dealers. But the Ministry of SMEs and Startups recently decided to allow them to join the market, with some conditions attached, such as limiting their market share, to create a level playing field.

Korea’s secondhand car market, a battleground among smaller car dealers since 2013, has been sluggish in recent years due to the COVID-19 pandemic.

Buyer sentiment has also cooled due to worsening economic conditions and elevated interest rates, which increased consumers' auto loans.

Nevertheless, Hyundai Motor plans to go ahead, launching a large-scale marketing campaign in October.

Hyundai is said to be selling used cars through an online platform to appeal to buyers increasingly accustomed to online shopping during the pandemic.

Once in, Hyundai will compete with existing players such as K Car Co., the country’s top used car retailer, and Hey Dealer, a mobile application for used car trades launched in 2015.

FINANCIAL GOALS

CEO Choi said the company, through its revamped strategy, aims to achieve an annual operating profit of 490 billion won on sales of 3.67 trillion won by 2025 with a rental fleet of 340,000 cars.

In Korea’s car rental and leasing market, Lotte is competing against No. 2 player SK Rent A Car Co. and car-sharing firms such as SoCar and GreenCar.

Lotte Rental will strive to raise its annual sales target by 25% every year in the near term, he said. In general-purpose rental services, the company aims to increase sales revenue fourfold by 2027 from the current level.

The company plans to maintain its dividend ratio of 35% while raising its total dividend payout by 10% annually in a strengthened shareholder policy, he said.

Shares of Lotte Rental closed down 0.7% at 27,900 won on Friday, underperforming the broader Kospi market’s 0.6% rise.

Write to Nan-Sae Bin at Binthere@hankyung.com
In-Soo Nam edited this article.