"Why Benz Works but Grandeur Doesn't"…The Dilemma of Large Corporations Entering the Used Car Market

[Reverse Discrimination Caused by Regulations②] Domestic Automakers Suffer from Reverse Discrimination
While Domestic Cars Struggle Due to Used Car Market Regulations, Imported Car Companies Grow Rapidly

[Asia Economy Reporter Changhwan Lee] The domestic used car industry in South Korea is growing every year, but it is considered one of the markets with severe reverse discrimination between foreign companies and domestic companies.

While domestic car manufacturers such as Hyundai and Kia are unable to enter due to government restrictions on large corporations, all imported car companies like Mercedes-Benz, BMW, and Audi are expanding their presence by leveraging the certified used car market.

Critics point out that amid this distorted entry structure, the used car market continues to be plagued by illegal transactions and fraudulent sales. This is an ironic outcome of government regulations aimed at creating a fair economy.

Growing Used Car Market, Becoming a Playground for Imported Cars?

According to the Ministry of Land, Infrastructure and Transport on the 5th, the number of used cars traded domestically last year reached a record high of 3.87 million units, a 7.2% increase compared to the previous year. Considering that the used car market has been growing annually since 2010, it is expected to surpass 4 million units this year. Given that 1.91 million new cars were registered last year, the domestic used car market is analyzed to be more than twice the size of the new car market.

The growth of the used car market is not unique to South Korea but is similarly occurring in major countries. In the United States, the used car market size increased from 36.24 million units in 2014 to 40.81 million units in 2019, and in China, it rose from 9.2 million units to 14.92 million units during the same period.

The global boom in the used car industry is attributed to prolonged economic downturns leading customers to turn to relatively affordable used cars rather than new ones, as well as the activation of internet transactions increasing the number of online platform operators.

Additionally, imported car brands that have established themselves in the domestic market through new car sales are significantly increasing their presence in the used car market by setting up their own certified used car sales systems.

For example, BMW's certified used car sales jumped from 3,820 units in 2014 to 11,687 units in 2018, Mercedes-Benz increased from 550 units to 4,640 units during the same period, Audi grew from zero to 4,582 units, and Jaguar Land Rover rose from 61 units to 2,677 units.

Imported Cars Get Their Worth, Domestic Cars Held Back

Despite the expansion of the used car market and the rapid growth of imported car businesses based on brand popularity, domestic car manufacturers such as Hyundai and Kia have been unable to even start their businesses due to government regulations and opposition from the used car industry.

Used car sales were designated as a "small and medium-sized enterprise suitable industry" by the Fair Trade Commission in 2013, blocking domestic automakers from entering the market, but this designation expired in early 2019. Since then, domestic automakers have been preparing to enter the used car market, but the situation remains difficult as the used car industry continues to resist and demands re-designation as a livelihood-suitable industry.

The domestic automotive industry claims that the restriction on domestic automakers entering the used car market has weakened the competitiveness of domestic used cars compared to imported cars and has not improved consumer distrust.

According to the Korea Automobile Manufacturers Association, as of last year, the price of a 2017 Genesis G80 in the domestic used car market fell by 30.7% compared to the new car price, while Mercedes-Benz's certified used E-Class dropped only 25.5%, and the GLC by 20.6%. The 2017 Hyundai Sonata fell by 45.7%, and the BMW 3 Series by 40.9%.

In contrast, in the United States, where there are no restrictions on automakers entering the used car market, there is little difference in depreciation rates between Korean and foreign brands, and in some cases, Korean brand prices are even higher depending on the model.

Especially in the domestic used car market, where participation by domestic automakers is restricted, the chronic problem of information asymmetry between sellers and buyers raises concerns about consumer damage due to incomplete transactions such as false listings. According to a consumer perception survey on the used car market released by the Korea Economic Research Institute at the end of 2019, 76.4% of respondents perceived the domestic used car market as opaque, chaotic, and underdeveloped.

Jung Manki, chairman of the Korea Automobile Manufacturers Association, said, "With rising incomes, consumer demands are becoming more premium, personalized, and diversified, so not only new cars but also the used car market requires differentiation and premium strategies. Considering the significant impact of used car competitiveness on new car competitiveness, the reverse discrimination between domestic automakers and imported cars must be resolved promptly."

(Left) The New Mercedes-Benz GLA Interior / (Right) The New Grandeur Exterior

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