Large Corporations Open Path to Used Car Market... Solid Consumer Trust Paves the Way (Comprehensive)

Used Car Market Major Transformation
Complete Car Manufacturers Expected to Promote 'Certified Used Cars'
Consumer Welfare Up with Quality Assurance and Information Access
Online Channel Expansion and Market Size Growth Anticipated

Seoul Jang-anpyeong Used Car Market

[Asia Economy Reporters Choi Dae-yeol, Kim Bo-kyung, Yoo Hyun-seok] Significant changes are expected across the complete vehicle market as large corporations are now permitted to enter the used 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, increasing incentives to attract potential consumers.

Earlier, Hyundai Motor Group finalized its business plan centered on its own brand vehicles, signaling that the domestic complete vehicle industry will 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 current used car operators, aiming to grow the overall market pie. This forms the basis for high consumer expectations.

Complete Vehicle Makers: "Focus on Certified Cars and Coexist with Existing Industry"

According to government departments and industry sources on the 18th, the ‘Used Car Sales Business Livelihood-Type Suitable Industry Deliberation Committee’ held the previous day decided not to re-designate the used car sales business. The used car sales business was designated as a small and medium enterprise (SME) suitable industry in 2013, restricting large corporations’ entry. When the designation expired in February 2019, existing used car dealers applied to the government to re-designate the used car sales business 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.

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 a conclusion to allow large corporations’ participation. The Korea Automobile Manufacturers Association, which includes complete vehicle makers as members, stated, "This decision not only normalizes the previously abnormal situation but also creates 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, Jeollabuk-do, and refining their business directions. Their recently announced used car business approach resembles the certified used car business that some imported car brands have operated. They plan to target only vehicles under 5 years old or with less than 100,000 km, enhancing purchase satisfaction by providing quality comparable to new cars through separate verification and maintenance infrastructure. Vehicles not meeting these criteria will be auctioned off to used car dealers as before.

They also clearly stated they will not expand recklessly, setting certain market share limits. Other complete vehicle makers such as GM Korea and SsangYong Motor are also reported to finalize their used car business plans and enter the market within this year. The complete vehicle makers have proposed coexistence measures, such as providing technical and customer service training to existing used car operators.

Consumer Welfare ↑: "Online Channels to Expand"

Consumer responses are positive. Previously, consumers often had to buy without proper knowledge about the product, but now, with large corporations guaranteeing quality and providing more related information, the likelihood of increased trust is high. This removes factors that hindered the growth of the used car market. According to the Korea Automobile Industry Association, the current domestic used car market size is about 1.4 times that of new cars, which is lower compared to the U.S. (2.3 times) and Germany (1.9 times).

Seoul Jang-anpyeong Used Car Market

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, resulting in frequent occurrences of false or bait listings and quality issues. 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, its 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, with online transactions accounting for only 590 billion KRW, about 1.5%. Trust between suppliers and demanders is crucial in online transactions, but the lack of trust even in face-to-face transactions limits the growth of the online market.

The entry of complete vehicle makers is expected to further expand the used car market itself. If transactions become active around well-known and trusted companies, it could serve 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’s reorganization centered on demanders, some view this as a natural trend. Jung Myung-hoon, a researcher at the Korea Automobile Manufacturers Association, explained, "Recently, the core of manufacturing competitiveness is not just simple sales but product lifecycle service capabilities," adding, "Since cars have a long lifespan, the participation of complete vehicle makers in the used car market is very important in the service transformation of manufacturing."

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

Must Decide How Far to Allow
Immediate Business Launch Difficult
Autonomous and Business Adjustment Deliberation Committees Held in Succession

Following the conclusion that the used car sales business does not qualify as a livelihood-type suitable industry, a ‘second round’ will unfold to determine whether large corporations such as Hyundai Motor and Kia can enter the used car market. The key is to establish a coexistence plan deciding to what extent large corporations can enter the used car market to protect existing SMEs.

On the 17th, the Ministry of SMEs and Startups held a coexistence-type suitable industry deliberation committee at the Government Complex Sejong and resolved not to designate the used car sales business as a coexistence-type suitable industry. The committee consisted of 15 private members, including representatives from small business owners, SMEs, mid-sized companies, large corporations, and experts. The meeting, which started at 10 a.m., ended around 8 p.m. It is reported that since both sides failed to reach an agreement until the end, the decision was made by anonymous vote. The vote results were 5 for livelihood-type suitable industry designation, 8 against, and 1 abstention.

The committee judged that the used car sales business has a low proportion of small business owners and does not meet the criteria for small-scale operations. They also considered the consumer welfare improvement effects such as securing product reliability through the entry of complete vehicle makers and expanding consumer choice. Previously, in November 2019, the Win-Win Growth Committee also issued an opinion that the used car sales business partially does not meet the criteria for suitable industries.

Seoul Jang-anpyeong Used Car Market

However, the fact that the used car sales business is not designated as a suitable industry does not mean immediate permission for large corporations to enter. There is another system called the ‘Business Adjustment Deliberation Committee’ to protect SME business areas. In January, used car industry groups submitted a business adjustment application to the Ministry of SMEs and Startups, and the ministry has recommended a temporary suspension of business commencement to Hyundai Motor and Kia, who are advancing most rapidly into the used car market. According to related laws, the minister can set the recommendation period within three years. Also, the committee must complete deliberations on the agenda within one year of the application date and may extend the deliberation period by up to one year if necessary.

A ministry official said, "Discussions are ongoing in the Autonomous Adjustment Council, composed of 19 members including representatives from large and small-medium enterprises, consumer groups, distribution industry, and legal experts," adding, "After investigating the damage to SMEs, the Business Adjustment Deliberation Committee will be held." If an agreement on how far to allow large corporations’ entry is reached through autonomous adjustment, it will be delivered to the Business Adjustment Deliberation Committee chaired by the head of the Small Business Policy Office of the ministry.

An industry insider said, "It’s not over until it’s over," adding, "With autonomous adjustment and business adjustment deliberation committees remaining, immediate business commencement by large corporations is difficult." A representative from the Korea Federation of SMEs also argued, "Hyundai Motor and Kia are global complete vehicle manufacturers, but entering the used car sales business is excessive," claiming, "It threatens the livelihood of 60,000 used car dealers."

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