[Corporate Exploration] Lotte Rental Declares Entry into B2C Used Car Market... Challenges 10% Market Share

During the COVID-19 pandemic, the shortage of new cars led to a rise in used car prices, resulting in strong performance for the used car industry. Although recently used car prices have slowed due to burdens from oil prices and interest rates, there is widespread anticipation that the market will become even more active as large domestic corporations announce their entry into the used car sales market. The used car sales market, once dismissed as a ‘lemon market’?where only low-quality products circulate due to opaque transaction procedures, quality, and price assessments?is now experiencing a new wave of standardization and transparency. Asia Economy analyzed the notable used car trading companies Lotte Rental and K Car.

[Asia Economy Reporter Park So-yeon] Lotte Rental is the leading rental specialist company in Korea, encompassing mobility services such as car rentals, used car sales, general rentals, and car sharing, as well as rental services for office equipment and construction machinery. As of 2021, its revenue composition was 58.9% from car rentals, 26.7% from used car sales, 8.0% from general rentals, and 6.4% from mobility (car sharing).

Lotte Rental has attracted attention by declaring its entry into the used car market targeting consumers (B2C) in the second half of this year. The company plans to retail vehicles that were previously used as short- and long-term rental cars after going through a productization process. Until now, Lotte Rental has sold rental cars it used in wholesale form through its own car auction, Lotte Auto Auction. The number of used cars sold annually by Lotte Rental is about 60,000 units, accounting for a 3% market share. Going forward, the company plans to open a used car platform linking online and offline channels to further increase its market share. Lotte Rental announced a goal to secure a 10% market share in the used car market by 2025. It will continuously supply used car inventory to used car dealers while providing integrated used car services.

For used car sales, the company plans to differentiate between online and offline channels. The online platform is being prepared as an integrated used car sales platform covering auctions and exports, scheduled to open in October. Offline, the focus will be on test drives and experiences, expanding into a used car complex multiplex business that includes a metaverse virtual space. With over eight years of auction expertise, Lotte Rental sells premium vehicles aged 3 to 4 years, transparently managing maintenance and accident histories. The company aims to achieve sales of 250,000 used cars by 2025.

However, challenges remain, such as differentiating from complete vehicle manufacturers and establishing win-win strategies with small-scale operators. With entry barriers to the used car retail market removed, domestic automakers like Hyundai Motor and Kia have also announced plans to enter the used car market. From the consumer perspective, trust in used cars sold directly by manufacturers is naturally higher, so Lotte Rental needs to develop differentiated competitiveness unique to itself. Hyundai Motor aims for a 5.1% market share in 2024. Researcher Choi Jong-kyung of Heungkuk Securities cited Lotte Rental’s strengths as "premium used car sales based on long-term rental car business, auction expertise, and an integrated platform for domestic and export markets."

Having successfully gone public last year, Lotte Rental is strengthening its presence as a mobility business operator beyond used car sales and rental services. It is enhancing its mobility business through investments in 42dot, a mobility platform company based on Urban Air Mobility (UAM), and in SoCar. It invested 25 billion KRW in 42dot, a mobility technology company developing autonomous driving technology at Level 4 (high-level autonomous driving). Recently, it acquired a 13.9% stake in the car-sharing platform SoCar for 183.2 billion KRW, becoming the third-largest shareholder. Since Lotte Rental owns Green Car (84.71% stake), the industry’s second-largest player, acquiring a stake in SoCar, the largest player, creates a scenario where the second-ranked company embraces the first. Lotte Rental, strong offline, aims to expand into new business areas through business cooperation with SoCar, which is evolving into a comprehensive mobility platform and a dominant online player. Recently, Lotte Rental added mobile communication business and new electric businesses to its business objectives.

Over the past three years, Lotte Rental has consistently recorded sales between 2 trillion and 2.4 trillion KRW. Operating profit on a consolidated basis doubled from 125.9 billion KRW in 2019 to 245.5 billion KRW in 2021. The operating profit margin also entered double digits, rising from 6.14% in 2019 to 10.13% in 2021. The main drivers of profit growth were expanded profitability in the long-term rental car business and sustained growth in the used car business. Sales growth in the general rental sector, driven by recovery in the construction market, also contributed. Capital investment steadily increased from 15 billion KRW in 2019 to 16.6 billion KRW in 2020 and 27.3 billion KRW in 2021.

The positive performance trend continued in the first quarter of this year, with sales of 648 billion KRW and operating profit of 70.5 billion KRW, up 10.0% and 43.4% respectively from the same period last year. The debt ratio decreased from 702.4% in 2019 to 395% in 2021. Interest-bearing debt remained in the 3 trillion KRW range before exceeding 4 trillion KRW last year.