SK Rent-a-Car Reviews Purchase Contracts Including Buyback Clauses
Used EV Prices Plummet Amid Manufacturer EV Price Cuts
Rent-a-Car Firms' Profitability Highly Sensitive to Used Car Prices
SK Rent-a-Car Adjusts EV Transition Speed Reflecting Market Demand
SK Rent-a-Car is reportedly proposing purchase contracts to some automakers that involve setting a fixed period and price for buying back used electric vehicles. As demand for electric vehicles has recently declined, causing used car prices to drop, rental car companies concerned about profitability are taking defensive measures.
According to industry sources on the 8th, SK Rent-a-Car is discussing guaranteed residual value purchase contracts with some automakers, which include a buyback condition to repurchase used electric vehicles at a predetermined price after a certain period. SK Rent-a-Car has purchased electric vehicles from numerous brands, including Hyundai, Kia, Mercedes-Benz, BMW, Tesla, Polestar, and Chevrolet.
The reason SK Rent-a-Car is negotiating buyback contracts with automakers is to prevent a collapse in used electric vehicle prices. As new electric vehicle demand decreases, manufacturers have implemented competitive price cuts, which in turn have caused used electric vehicle prices to fall. Used car prices are sensitive because they directly affect rental car companies' profitability. Rental companies typically sell used cars after about three years of new car purchase to generate profits or reflect depreciation. From the manufacturers' perspective, defending used car prices is also important for enhancing brand image.
The downturn in electric vehicles has already impacted the rental car industry. In particular, SK Rent-a-Car, the second-largest in the industry, has aggressively promoted the transition to electric vehicles compared to the number one, Lotte Rental. As the proportion of electric vehicles increased rapidly, the profitability burden due to depreciation also grew, and depending on market conditions, the transition speed slowed down starting last year. In 2022, 20% (about 7,000 units) of newly purchased vehicles were electric, but this proportion was reduced to 10% last year.
According to the Korea Rent-a-Car Business Association Federation, as of the end of last year, there were about 55,000 electric rental cars registered domestically, accounting for 5.2% of all rental cars. The number of electric rental car registrations last year increased by only 13% compared to the previous year. This is a significant drop compared to the 92% and 60% growth rates in 2021 and 2022, respectively.
The situation is similar for overseas companies. Ayvens, the world's largest multi-brand leasing company, is also reportedly demanding contracts with buyback clauses from manufacturers to offset the decline in used electric vehicle prices and has received some affirmative responses. Hertz, the largest rental car company in the United States, recently decided to sell 20,000 units, equivalent to one-third of its electric vehicle fleet. This effectively cancels the original goal of replacing one-quarter of the company's entire fleet (550,000 vehicles) with electric vehicles by the second half of this year.
An official from an imported car company said, "In the current situation where electric vehicle purchases are hesitant to reduce uncertainties caused by fluctuations in used electric vehicle prices, rental car companies have the upper hand in negotiations," adding, "Automakers with a high proportion of electric vehicles have no choice but to accommodate various demands from rental car companies."
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