Top Korean companies’ new battlefield: Used car market

Hyundai Motor Co., Lotte Rental Co., and KB Financial Group, the No. 1 players in each of their sectors, are gearing up to fight in a new arena – the used car industry, which is expected to surpass the new automobile market in the coming years.

The domestic secondhand vehicle market has been regarded as a hotbed of fraud and distrust due to deceptive sales practices. Those major companies plan to increase confidence with their brand names and credibility boosting measures, aiming at the market with high profitability after the government allowed big companies to enter the market in March.

The local used car industry is expected to exceed the country’s new car market, helped by those major firms, analysts said. The secondhand vehicle market size was 38 trillion won last year ($29.3 billion), smaller than the new automobile market’s 59 trillion won, according to the government data.

“Major companies’ capital and technology capabilities will accelerate consolidation in the used car market,” said Lee Jae-il, an analyst at Eugene Investment & Securities. “That will create an attractive market with both profitability and growth potential.”

The country’s used car market is just 1.5 times larger than the new vehicle market in terms of sales volume, much smaller than the UK’s 4.6 times, the US’ 2.7 times and Germany’s 2.6 times.



TARGETING A PROFITABLE MARKET

Lotte Rental, the country’s No. 1 car rental firm, is working on an online platform for the retail business and targeting an October launch. The company plans to directly sell long-term rental cars, which have been sold to dealers in wholesale contracts, to consumers.

Lotte was known to have been earning about 20% of the operating profit margin from the wholesale business. The margin is expected to increase once the company expands the business into the retail market.

K Car Co., the country’s top used car retailer, is expanding its investment. The company owned by Seoul-based private equity firm Hahn & Co. is considering opening large showrooms near factory outlet shops.

Financial firms are also interested in the used car market as customers often need installment loans to buy vehicles. KB Chachacha, operated by KB Capital Co., a unit of KB Financial Group, attracted dealers to use its financial services to sell secondhand vehicles. KB Capital, which has the country’s largest used car platform with some 160,000 units, reported 275 billion won in operating profit, far higher than a profit of about 150 billion won when it did not have the business.

Startups have also targeted the market. Hey Dealer, a mobile application for used car trades launched in 2015, lured female drivers with a TV commercial casting actresses in popular series – Kim Hye-soo of Juvenile Justice and Han So-hee of My Name. Platform giants such as Naver Corp. and Kakao Corp. are also potential players in the used car market.

Hyundai Motor, the country’s top automaker, is preparing a platform for the business as it unveiled a plan to enter the market in May next year.

CREDIBILITY

Those companies are trying to improve the credibility of the market where more than half of used car transactions were made between individuals due to a deep distrust of dealers.

KB Chachacha enhanced consumer confidence by certifying KB brands to dealers, while K Car chose Yoo Jae-suk, a popular comedian on the variety show Running Man, for its commercial to create an image of trustworthiness and credibility. 

It took 32.5 days on average for K Car to sell used vehicles after purchases last year, shorter than 37.2 days in 2018.

Write to Han-Shin Park at phs@hankyung.com
Jongwoo Cheon edited this article.