Faithful to the Core Business, Maximizing Asset Utilization
Rental Car Market Still Holds Growth Potential
Highlighting the Advantages of Used Car Rentals
"Companies engaged in the rental business must remain faithful to the essence of rental itself. My belief is that we should maximize the utilization of our assets. Instead of adhering to the conventional practice of selling rental cars after just four years, we have sought to focus more on rental within the legally permitted range. The core of our business is the growth of rentals."
This was the response from Lee Junghwan, CEO of SK Rent-a-Car, when asked about countermeasures for the recent changes in the management environment surrounding the car rental industry. At a briefing held on the 15th to mark the opening of a new auction house in Cheonan, Lee said, "It is true that the rental business, which had enjoyed double-digit growth for years, has recently stagnated." However, he added, "Nevertheless, both individuals and small to medium-sized enterprises still have relatively low rental rates, so I believe there is ample growth potential."
Lee Junghwan, CEO of SK Rent-a-Car, is answering reporters' questions at the SK Rent-a-Car Auto Auction opening briefing held in Cheonan on the 15th. Photo by Korea Automobile Journalists Association
Lee was appointed as CEO from outside the company in August last year. Earlier, in June of the same year, the major shareholder changed from SK Networks to the private equity fund Affinity, and both Lee and Park Sangwook, the new CFO, were appointed. Lee previously served as CEO of Autoplus (Reborncar), the second-largest used car company in Korea. He majored in finance and has mainly worked in the IT industry or consulting firms.
Rental car companies generate most of their revenue from rental fees for cars they purchase and lend out, as well as from selling those vehicles before the legal limit of seven years is reached. While it varies depending on market conditions, long-term rentals are generally more profitable than short-term rentals, and selling used cars is even more profitable. When Lee, with his experience in the used car business, was appointed as the new CEO of the nation’s second-largest rental car company after the change in major shareholder, the industry initially expected him to focus on boosting vehicle sales.
The auction house unveiled to the press that day was also widely seen in this context. Built on land acquired from Hyundai Elevator last year, the facility is the largest used car auction house in Korea. It is equipped with state-of-the-art systems for inspecting vehicles and facilities for servicing cars before sale.
The vehicle is passing through the 'underbody scan equipment' installed on the floor to conduct a detailed inspection of the vehicle's undercarriage condition. Provided by SK Rent-a-Car
However, Lee made it clear that the overhaul of the used car auction system was not primarily to increase the proportion of vehicle sales, but rather to make the existing business more efficient. He said, "When I became CEO last year, I found that we did some retail (selling used cars directly to general customers), but for wholesale (selling to used car businesses or exporters), we had no in-house auction facility and relied on consignment sales." He added, "For now, we will focus on the rental business, and if the auction business becomes more active, we may consider expanding into retail in the future."
The decision to make 'used car rental' a core business item?something uncommon in the traditional rental car industry?was also motivated by a desire to focus on the core business. Companies and institutions typically sign four-year contracts for rental cars. Since regulations prohibit operating rental cars for more than seven years, vehicles are often sold immediately after the four-year contract ends, depending on their condition. The decision to sell a car as a used vehicle or to continue using it as a rental car for the remaining three years is made after considering various factors.
By combining the advantages of each option, the company has recently promoted the 'Try-and-Buy' model as a main category. In this model, customers can try a used rental car for several months and, if satisfied, purchase it; if not, they can continue renting or simply end the contract. This business structure is possible because the company has expertise in refurbishing long-used vehicles to near-new condition through a comprehensive reconditioning process.
Lee explained, "With used car rentals, customers can try the car for several months, and if they decide to buy, the rental fees already paid are deducted from the purchase price. Our internal TCO (total cost of ownership) analysis shows that this is the most advantageous approach for customers, and we are actively communicating this."
SK Rent-a-Car Auto Auction has introduced the 'Inspection Studio,' which shows the condition of listed vehicles through online live broadcasts. Photo by SK Rent-a-Car
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