[Takryu Cheongron] Side Effects Outweigh Benefits... The Used Car Market Needs Entry of Large Corporations

Juhong Kim, Executive Director of the Korea Automobile Manufacturers Association

For the past six years, domestic automakers have been unable to engage in the used car sales business. This is because the used car sales industry was designated as a small and medium-sized enterprise (SME) suitable business category twice, preventing large corporations from entering the market.

It is urgent for domestic automakers to participate in the market. First, from the perspective of consumer welfare and customer management. Currently, unlike imported car brands, the domestic used car market restricts the participation of automakers, resulting in rampant false listings, illegal transactions, and undocumented deals, which have led to negative perceptions among consumers. According to a survey by the Korea Economic Research Institute on consumer perceptions of the used car market, 76.4% of respondents evaluated the domestic used car market as opaque, chaotic, and outdated. The main reasons for this negative perception were poor vehicle condition (49.4%) and false bait listings (25.3%). The distrust has accumulated because used car dealers exploit information asymmetry between sellers and buyers and limit buyers' information about vehicles, leading to opportunistic behavior that harms used car buyers.

Cars are high-value assets directly related to life and safety, and unlike other SME suitable businesses (such as traditional rice cakes and soy sauce), the scale of damage caused by consumer harm is enormous, making the responsibility and role of manufacturers paramount. Especially as autonomous vehicles, electric vehicles, and hydrogen fuel cell vehicles become more widespread, demands for performance and quality assurance, as well as after-sales service (AS), will increase. Used car dealers will likely be technically insufficient to meet these demands. Therefore, it is increasingly necessary for automakers to participate in the used car market and establish a systematic and advanced certification management system to provide safe, high-quality used cars with guaranteed residual value. This is also why automakers participate in the used car markets in most countries such as the United States and Europe.

Second, from the perspective of the competitiveness of the national automotive industry ecosystem. Automakers’ participation in the used car market not only enhances the competitiveness of new cars by strengthening the used car market but also revitalizes the used car market itself. Currently, overseas, the volume of used car sales is about 2 to 3 times that of new cars, whereas domestically it is only about 1.2 times. The market structure is also multi-layered. Overseas, businesses are active not only in used car sales but also in bulk sales brokerage (remarketers), used car history information providers, residual value and market price information providers, integrated solution providers for inventory and customer management, and testing and certification agencies. In the era of the Fourth Industrial Revolution, the used car market will become a fertile ground for creating new business opportunities using big data and artificial intelligence (AI) in line with the expansion of mobility services and connected cars.

Meanwhile, overseas automakers participate in used car transactions and after-sales service through used car certification systems, systematically collecting information on used cars’ driving history, parts replacement, and vehicle condition after accidents, and utilizing this data in new car development. This information is crucial not only for new car development but also for enhancing the competitiveness of the automotive industry ecosystem. In short, the used car market cannot be separated from the automotive industry ecosystem. Systematic management is needed from manufacturing to sales, maintenance, and used car transactions. However, due to entry regulations, our domestic automakers are unable to operate their businesses like global automakers.

However, imported car brands operating in Korea are conducting certified used car businesses in the domestic used car market. By guaranteeing appropriate used car prices through quality and maintenance, they secure loyal customers and link this to new car sales. In contrast, domestic automakers and consumers face reverse discrimination due to regulations. They are losing competitiveness even in the new car market. In short, domestic automakers are paradoxically competing on a tilted playing field in the domestic market.

Considering consumer welfare in the used car market, the competitiveness of the automotive industry, and reverse discrimination against imported car brands, it is urgent for domestic automakers to participate in the used car business. The opinion of the Win-Win Growth Committee that the designation of the used car sales business as a livelihood-type suitable business category by the Ministry of SMEs and Startups is inappropriate should also be respected. It is time to reflect on what has truly changed within the regulatory framework over the past six years regarding the designation of the used car sales business as a livelihood-type suitable business category and to wisely consider what best serves consumer rights and interests.

Kim Juhong, Executive Director, Korea Automobile Manufacturers Association