Hyundai, Lotte to join used car market, seen as boost for small players

South Korea’s top automaker Hyundai Motor Co. and the country’s No. 1 car rental firm Lotte Rental Co. are advancing into the domestic used car market, which is expected to grow to 50 trillion won ($41 billion) by 2025.

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 on Thursday allowed them to join the market, with some conditions attached to create a level playing field.

Taking a cue from the state go-ahead, Lotte Rental said on Friday it is entering the local business-to-consumer used car market in the second half.

The company said it aims to gain a 10% share of the market by 2025, working closely with its affiliate Lotte Auto Auction, an online used car auction service operator.

Other car rental firms, including SK Rent A Car Co., are also said to be considering entering the used car market.

The move comes a couple of weeks after Hyundai Motor Group, which owns the country’s two largest automakers – Hyundai Motor and Kia Corp. – unveiled plans to enter the secondhand car market.

Hyundai said on March 7 that it plans to sell only high-quality certified secondhand cars that have traveled fewer than 100,000 kilometers over up to five years.

It also said it will limit its market share to 5.1% by 2024 as part of its efforts to protect existing smaller used car-selling companies.

REMOVAL OF REGULATORY OBSTACLES

Hyundai Motor has shown interest in the domestic secondhand car market but faced objections from its unionized workers and smaller car dealers as well as regulatory obstacles.

The local used car market has been the battleground for only small and medium-sized companies since 2013, and requests by big companies to join the market have been rejected by the government.

However, the Ministry of SMEs and Startups on Thursday allowed large firms to join the market, a move that could create an upheaval in the relatively small market.

According to the transport ministry, Korea’s used car market stood at 3.87 million units in 2021. Actual transactions excluding possible overlapping deals in the retail and wholesale markets will be around 2.59 million cars, amounting to 1.4 times that of new cars in the country, according to industry officials.

The ratio of used car sales versus new car sales compares with 2.4 times in the US and 2 times in Europe, they said.

According to Samsung Securities and Frost & Sullivan, Korea’s used car market is forecast to grow to 50 trillion won by 2025 from 39 trillion won in 2020.

SHARES OF CAR DEALERS RISE

Shares of existing used car companies rose sharply on Friday on expectations that the entry by large companies could galvanize and expand the smaller Korean secondhand car market.

K Car Co., currently Korea’s top used car retailer, surged as much as 23% to hit this year’s high of 37,300 won before closing 3.8% higher on Friday.

Lotte Rental finished up 8.6% at 41,600 won after rising as much as 11% earlier.

Auto & Inc., an after-sale service spin-off of Hyundai Motor Group, ended up by the daily limit of 30% at 18,850 won. Hyundai Motor closed up 1.5% at 171,000 won.

“Hyundai will become a major rival for K Car. But big companies’ entry into the used car market will expand the entire size of the market, which is also good for existing players, including K Car,” said Korea Investment & Securities analyst Kim Jin-woo.

Hyundai has been looking to enter the secondhand car market to gather data from owners of Hyundai vehicles such as mileage, driving habits and maintenance and repair records – information that it can later utilize for improved client services.

With the growing popularity of electric vehicles, Hyundai also hopes to easily recover used batteries if it stays in the secondhand car market – a move that can make it easier to enter the battery reuse and recycling market.

Analysts expect other carmakers such as GM Korea, Renault Korea and Ssangyong Motor to follow suit and enter the used car market in the near future.

Write to Eun-Seo Koo, Byung-Uk Do and Hyung-Kyu Kim at koo@hankyung.com
In-Soo Nam edited this article.