[Public Voices] Hyundai Kia's Entry into the Used Car Market and Consumer Rights

Hyundai Motor Company and Kia (hereinafter referred to as Hyundai Kia) have entered the used car market. Used car sales had been designated as a suitable business sector for small and medium-sized enterprises, making it impossible for large corporations to enter. However, this designation was lifted in 2019. Despite this, it took Hyundai Kia four years to start selling used cars due to opposition from used car dealers.

Used car dealers argued that the entry of large corporations into the used car market would take away jobs from small business owners, while large corporations claimed that eliminating information asymmetry in the used car market would benefit consumer rights. It is obvious that benefiting consumer rights comes first. The used car market is a representative example of a "lemon market." Sellers clearly know the actual value of used cars, but most buyers find it difficult to accurately know that value, so there is inherently an information imbalance in used car transactions. Buyers may end up purchasing low-quality used cars at high prices, which makes them reluctant to buy used cars and may even avoid purchasing them altogether. To further activate the used car market, this information asymmetry must be resolved, which can be simply done through official quality certification. Used cars sold by Hyundai Kia are officially quality-certified listings, unlike other used cars, and quality certification can more accurately inform consumers of the value of used listings. Therefore, consumers who previously hesitated to buy used cars are more likely to trust and purchase used cars sold by Hyundai Kia.

The survival of existing used car dealers depends on whether they change or maintain their business models. The reason existing used car dealers are less competitive compared to Hyundai Kia is simple: they have not been able to provide consumers with confidence in quality. By conducting transactions as transparently as possible and minimizing damage caused by false or low-quality listings, they can change the perception that "buying a used car means being scammed," thereby gaining competitiveness and coexisting with Hyundai Kia.

The fortunate part is that existing used car dealers have enough time to gain competitiveness. For the next few years, Hyundai Kia is regulated to only capture 3-4% of the used car market.

In the short term, Hyundai Kia’s entry into the used car market may shrink new car sales or lower new car prices. Consumers who previously bought new cars instead of used cars due to information asymmetry may now purchase used cars instead of new cars. Therefore, Hyundai Kia may lower new car prices to maintain the competitiveness of their new car models.

However, in the long term, this is not only beneficial to consumers. If Hyundai Kia gains market power in the used car market, it could significantly harm consumer rights. Hyundai Kia already monopolizes the new car market, and if it also monopolizes the used car market, it could raise prices for both new and used cars simultaneously.

A bigger problem is that Hyundai Kia might lower the quality of future new cars. For example, by deliberately reducing the durability or lifespan of cars, they could suppress the size of the used car market. This would force consumers to buy lower-quality cars at higher prices. Therefore, in the long term, policy efforts are needed to prevent Hyundai Kia, which monopolizes the new car market, from also monopolizing the used car market.

Seo Boyoung, Professor at Kelley School of Business, Indiana University