K Car's evolution into top Korean used car sales platform

When Seoul-based private equity firm Hahn & Co. acquired K Car Co. from SK Group in 2018, the No. 1 used car retailer in South Korea controlled a meager 3% of the 35 trillion won ($30 billion) market.

Despite the steady growth in used car registrations, the domestic used car market had been fragmented by small brick-and-mortar dealerships. 

But Hahn & Co., founded in 2010 by ex-Morgan Stanely Managing Director Scott Sang-Won Hahn, focused on the growing online sales of used cars in one of the world's most connected countries. 

Online sales rose to one-fourth of total used car transactions in South Korea in 2018, versus 19% the year previous. But most of the websites functioned as a simple platform to match would-be buyers with potential sellers, without a guarantee on the vehicle's quality. Buyers also needed to check whether the  offer was true or not by themselves.

"We concluded that the used car market will continue to grow and we can expand into other businesses, based on the used car sales platform," Hahn & Co. Chairman Yoon Yeo-Eul told The Korea Economic Daily's capital market news outlet Market Insight. 

K Car, launched as an in-house venture in 2010, was a non-core unit of SK Group. The conglomerate was forced to sell the unit in line with the government regulations, under which the used car business was categorized into ones suitable for small- and medium-sized enterprises.

Holding 8,000 used cars also curbed the company's profit margin growth because they were booked as inventory assets. But Hahn & Co. believed it could utilize them to expand into other relevant businesses such as car rental and lease, as well as auto financing.

INNOVATIVE FEATURES

Immediately after the acquisition worth around 200 billion won, Hahn & Co. bolstered K Car's offline sales network, made additional purchases of vehicles directly from sellers and increased the number of professional salespeople. Currently, 1,150 employees work at K Car's 46 dealerships.

To win customer trust, it introduced a 3D Live View service, offering three-dimensional and detailed images of the car from the interior to the trunk to the engine room as if the buyer sees it in person.

The platform also shared automotive experts' evaluations of the cars under his or her real name.

To set it apart from other online platforms, K Car introduced same-day delivery in 2019 and a return guarantee within three days of purchase regardless of the reason.

Moreover, it provided a quality guarantee for up to 20,000 km per year, an unprecedented favor offered to online car buyers in the country. To enhance its brand awareness, K Car hired top South Korean entertainers and movie stars for its TV commercials and advertisements.

EXPANSIONARY MOVES

Almost simultaneously with the purchase of K Car, Hahn & Co. in 2018 acquired 100% of Joy Rent A Car Co. from South Korea's CJ Group for around 50 billion won.

K Car is able to rent its used cars at a far lower price than rival companies considering that used cars depreciate at a faster rate than new vehicles. 

"Compared with used car registrations, the car rental and lease market has been growing at a faster rate. That drew our attention," Hahn & Co.'s Yoon said. 

In 2019, the Korean PE firm established K Capital Co., the country's first auto finance company tailored to used car buyers to allow them to pay in installments.

K Car commands 81% of online used car sales in South Korea, according to Frost & Sullivan’s 2020 Market Research. The number of used cars traded via K Car more than doubled to 139,000 units in 2021, compared with 64,000 units in 2018.

Of the total, about 45% of its car sales were carried out on the Internet in 2021, driving a 74% on-year growth in K Car's revenue from online car sales.

Samsung Securities analyst Lee Kyungrok expects online sales to increase further to 52% of K Car's sales this year. He revised slightly upward its forecast for K Car's 2022 revenue to 2.29 trillion won from 2.27 trillion won.

Last year, its revenue surged by 92% to 1.9 trillion won, versus 990.4 billion won in 2018. Operating profit soared 14-fold to 71.1 billion won over the same period. 

"Thanks to strong online sales, K Car will likely maintain annual sales growth of around 20% this year," said Hanwha Investment & Securities analyst Kim Dong-ha. 

He forecast a 30.8% on-year jump to 93 billion won in K Car's 2021 operating profit and a 19.3% rise in revenue to 2.27 trillion won. 

Shares in K Car have gained 22% since its market debut in October 2021, but declined about 30% from its historic high of 43,200 won touched in early December 2021.

"By joining hands with several platforms such as Woori Financial Group, Kakao Mobility and Naver, K Car has been strengthening its market dominance in the used car sales market," said Yoon.

"We will grow it as a more reliable platform in the pandemic era." 

K Car is 72% owned by Hahn & Co., which manages $10.1 billion in assets.

Yoon, ex-CEO of Sony Group Korea, added that K Car has a similar business model to Carvana's in the US.

Write to Ji-Hye Min at spop@hankyung.com
Yeonhee Kim edited this article