Large Corporations Open Path to Used Car Market... Consumer Trust 'Smooth Road'

Complete Car Manufacturers Expected to Promote 'Certified Used Cars'
Consumer Welfare Up with Quality Assurance and Information Acquisition
Online Channel Expansion and Market Size Likely to Grow

[Asia Economy Reporters Choi Dae-yeol and Yoo Hyun-seok] With the entry of large corporations into the used car market now permitted, significant changes are expected across the entire completed car market. This is because factors that previously acted as high barriers during the purchasing process?such as low trust and severe information asymmetry?are expected to be resolved, thereby increasing incentives to attract potential consumers.

Earlier, Hyundai Motor Group finalized its business plan centered on its own brand vehicles, and the domestic completed car industry is also expected to actively reorganize and expand its business. In particular, Hyundai Motor plans to handle only vehicles that meet certain standards on a limited basis, supply the rest to existing used car dealers, and share various know-how with existing used car operators, aiming to grow the overall market share. This forms the basis for high consumer expectations.

Completed Car Makers "Focus on Certified Cars and Coexist with Existing Industry"

According to related ministries and industry sources on the 18th, at the ‘Used Car Sales Business Livelihood-Type Suitable Industry Deliberation Committee’ held the previous day, the used car sales business was not re-designated. The used car sales business was designated as a small and medium enterprise suitable industry in 2013, limiting large corporations’ entry. When the designation expired in February 2019, existing used car dealers applied to the government to have the used car sales business re-designated as a livelihood-type suitable industry. However, due to COVID-19 and opposition from existing dealers, the government was unable to reach a clear conclusion until this recent decision.

Used Car Export Complex in Songdo Recreation Area, Yeonsu-gu, Incheon City

Compared to other industries, there are virtually no small business owners, and consumer welfare has hardly improved even after designation as a suitable industry, leading to the conclusion to allow large corporation participation. The Korea Automobile Manufacturers Association, which includes completed car makers as members, stated, "This not only normalized the previous abnormal situation but also created an opportunity for the used car industry to develop," adding, "We will closely communicate with existing used car dealers to expand choices and enhance consumer rights."

Hyundai Motor and Kia have been preparing quietly by registering businesses in Yongin, Gyeonggi Province, and Jeongeup, Jeonbuk Province, and refining their business directions. The recently announced used car business direction resembles the certified used car business that some imported car brands have operated. The plan targets only vehicles under 5 years old or 100,000 km, aiming to increase purchase satisfaction by providing quality comparable to new cars through separate verification and maintenance infrastructure.

Vehicles not meeting these criteria will be handed over to used car dealers for transactions via auctions or other methods, as is currently done. They also clearly stated they will not expand recklessly, setting certain market share caps. Other completed car makers such as GM Korea and SsangYong are also reported to finalize and enter the used car business within this year. Completed car makers have also proposed coexistence measures, such as providing technical and customer service training to existing used car operators.

Consumer Welfare Up... "Online Channels to Expand"

Consumer responses are positive. Until now, consumers often had to buy without properly knowing the product, but going forward, large corporations guaranteeing quality and providing more related information is expected to increase. This removes factors that have hindered the growth of the used car market. According to the Automobile Industry Federation, the current domestic used car market size is about 1.4 times that of new cars, which is lower compared to the US (2.3 times) and Germany (1.9 times).

According to a survey by the Korea Consumer Federation, consumer trust in the used car market is only 14.8%, and trust in dealers (sellers) is just 11.2%. This is due to severe information asymmetry causing continuous issues such as false or bait listings and quality problems. The association notes that even for the same car model with similar mileage and age, used car transaction prices can vary by more than 60%. Although there is a comprehensive performance record showing vehicle condition, the items are insufficient, and there is virtually no penalty for non-compliance, leading to ongoing criticism of its effectiveness for years.

Due to low trust, online penetration has also been sluggish. Market research firm Frost & Sullivan estimated the domestic used car market size at 39 trillion KRW in 2020. Of this, the online share was only 590 billion KRW, about 1.5%. Trust between suppliers and demanders is crucial in online transactions, but since trust is lacking even in face-to-face transactions, there are limits to the growth of the online market.

Seoul Jang-anpyeong Used Car Market

The entry of completed car makers is expected to further expand the used car market itself. If transactions become active around well-known and trusted companies, it is likely to act as an incentive to attract consumers. An industry insider said, "If large corporations continue to enter, the system will become more sophisticated, creating an environment where consumers can purchase with confidence," adding, "The market as a whole can also develop."

Considering the disappearance of boundaries between manufacturing and service industries and the market being reorganized around demanders, some view this as a natural trend. Jung Myung-hoon, a researcher at the Automobile Industry Association, explained, "Recently, the core of manufacturing competitiveness is not just simple sales but product lifecycle-wide service capabilities," adding, "Since cars have a long durability period, the participation of completed car makers in the used car market is very important in the service transformation of manufacturing."

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