Korea’s secondhand car market cools amid elevated interest rates

South Korea’s secondhand car market is cooling rapidly as both dealers and buyers are reeling from elevated interest rates, which also bode ill for automakers.

According to a tally by CarIsYou Data Research Institute, used car inventories stood at a record-high 149,707 units at the end of 2022, up 135% from 63,840 cars at the end of 2021.

Vehicles have piled up at domestic secondhand car dealerships as dealers purchased used cars with money borrowed from financial companies at annual interest rates of 10-12%, almost double the borrowing costs of six months earlier, while consumers have been hesitant to buy cars amid the economic downturn.

Industry data showed about 50.2% of cars put on auction in the used car market run by Hyundai Glovis Co. were sold to secondhand car dealers in the fourth quarter of last year, down from 61.6% in the first quarter of 2022.

“We got about 5 to 10 calls a day about car purchases last year. But these days, we sometimes receive no calls at all,” said a car dealer at the Janganpyeong used car market, the country’s largest.

A Korea Federation of Used Car Dealers Association (KUCA) official said about a third of used car dealerships could go under by the end of this year.

BACKLOGGED ORDERS FOR NEW CARS DEPLETING

Conditions are also souring for the new car market.

“Backlogged orders for new cars were growing as carmakers couldn’t make enough cars due to the global shortage of automotive chips. But in recent months, buyers have been canceling their car purchases. And these days, we don’t see many new contracts,” said a new car dealer.

In the latest indication of cooling consumer interest in new cars, Tesla Inc.’s Korean office recently cut the price tag of its Model 3 and Model Y electric cars by 8.5% and 12%, respectively, to 64.34 million won ($51,704) and 85 million won.

Overseas used car markets are also reeling from higher interest rates.

According to market research firm Cox Automotive Inc., new car inventories in the US have risen to 56 days, up sharply from about 30 days at the end of July 2021.

“An increase in installment payments and higher vehicle prices are clouding the new car market this year,” said a Cox Automotive official.

The Korea Automobile Manufacturers Association (KAMA) expects this year’s domestic car sales to fall 1.5% from last year to 1.72 million units, while exports are forecast to rise 3.1% to 2.35 million cars.

“Because of the low comparison base, we expect the overall Korean car market to grow this year, but we are seeing only limited demand for new cars as consumers’ disposable income is falling,” said a KAMA official.

Write to Han-Shin Park and Hyung-Kyu Kim at phs@hankyung.com
In-Soo Nam edited this article.