Used Car Market 1.3 Times Larger Than New Car Market...Will Big Corporations Enter?

Decision on Designation of Livelihood-Suitable Industries Expected This Month
Automobile Manufacturers Anticipate Large Corporation Entry Excluding Complete Vehicle Sector
About 2.5 Million Used Car Transactions Last Year, 1.3 Times New Car Sales
Over 52% Peer-to-Peer Transactions...Emerging Side Effects of Underground Deals

[Asia Economy Reporter Su-yeon Woo] Interest is growing in whether large corporations will be able to enter the used car market, which is 1.3 times larger than the new car market. This comes as the Ministry of SMEs and Startups (MSS) plans to make a final decision by the end of this month on whether to designate the used car sales business as a livelihood-type suitable industry. The Win-Win Growth Committee, which provides advisory opinions to the MSS, issued an 'unsuitable' opinion on the designation of livelihood-type suitable industry, prompting some large corporations to quietly prepare for new used car business ventures.

According to KaizuU statistics on the 6th, the number of used car registrations last year was 2,459,600, which is 1.36 times the number of new car registrations (1,795,700) during the same period. Among these, peer-to-peer transactions accounted for 1,293,800, making up more than half (52%) of all transactions. Although more than 6,000 used car dealerships operated in Korea last year, consumers still tend to believe that direct transactions between individuals are better than dealing with dealers.

The used car sales business has been designated as a small and medium-sized enterprise (SME) suitable industry for six years since 2013, restricting new entries and business expansions by large corporations. This year, the used car industry requested to further designate the used car sales business as a livelihood-type industry. Due to delays in surveys and industry feedback caused by the COVID-19 pandemic, the MSS postponed the original deadline and extended the decision period until the end of this month.

Previously, in November last year, the Win-Win Growth Committee submitted an opinion to the MSS stating that designating the used car sales business as a livelihood-type suitable industry was partially unsuitable. This is the first time the committee has issued an unsuitable opinion, and since the MSS largely considers the committee’s opinions, expectations are rising that new entries by large corporations will be possible this time.

Some argue that there is a need for large corporations to enter the used car market, which has a strong perception of underground transactions, to provide systematic and transparent services. The domestic used car market is flooded with small-scale businesses, intensifying competition and increasing consumer dissatisfaction.

According to Statistics Korea, the number of used car dealerships in Korea was 6,361 as of 2018, steadily increasing each year. Furthermore, a recent consumer perception survey on the used car market by the Korea Economic Research Institute found that 76% of respondents distrust the used car market. The main reasons for negative perceptions were distrust of vehicle condition (50%), numerous false or bait listings (25%), low cost-effectiveness (11%), and distrust of sellers (7%).

Shin Hyun-do, CEO of used car distribution company Yuka, pointed out, "The biggest problem in the current used car industry is the incumbent operators’ desire to maintain vested interests and their complacent attitude toward environmental changes," adding, "Clear legal definitions, regulations, and administrative management regarding the status of used car sales employees, who are neither business owners nor salaried workers, are absolutely necessary."

Large imported car companies have long entered the 'certified used car market,' exploiting a regulatory blind spot where SME suitable industry regulations applied only to domestic companies. Last year, certified used car sales by five imported car companies?Mercedes-Benz, BMW, Lexus, Audi, and Jaguar Land Rover?reached 21,653 units, a 221% increase over 6,738 units in 2015 within four years.

The biggest advantage of large corporations entering the used car market from the consumer perspective is the ability to purchase highly reliable used cars directly certified by manufacturers. Complete car manufacturers can create a virtuous cycle by simultaneously selling new cars and purchasing used cars, managing customers regularly. Additionally, receiving the 'right price' for verified used cars can positively influence the brand image of new cars.

On the other hand, from an industrial structural perspective, the entry of large corporations must be approached cautiously. From the viewpoint of existing workers, it could directly affect their livelihoods. As of 2018, there were about 28,000 workers in the used car sales business, and among 6,361 used car dealerships, 48.2% (3,068) had sales under 1 billion KRW.

Small-scale merchants who purchase used cars on consignment from domestic new car dealerships are expected to be particularly impacted. Furthermore, if certified used cars become widespread, businesses that cannot meet the heightened expectations of consumers or fail to quickly adapt to online non-face-to-face platforms are likely to be eliminated. An industry insider said, "While the entry of large corporations is inevitable for improving trust in the used car market and consumer welfare, coexistence measures with existing small businesses must also be sought."

This content was produced with the assistance of AI translation services.