Disrupted car production buoys used car market

Cars are parked at a used car dealership in Bucheon, Gyeonggi Province, in this July 2015 file photo. Korea Times file

By Baek Byung-yeul

With the prolonged supply of automotive semiconductors, demand is increasing for purchasing used cars or using car sharing platforms instead of buying new ones.

According to the latest automotive industry report, global carmakers are still unable to completely escape the aftermath of car component shortage. As a result, some popular models take more than a year of waiting after customers make their orders.

A dealer for Kia in Seoul said its newly launched EV6 “would probably take around a year for customers to actually receive due to the component shortage.”

The used car market here is widely seen as full of scams using invisible transactions, such as not providing full information on vehicles and selling for deceitful prices, but many customers are saying that a paradigm shift is occurring in the market with the development of online trading platforms.

In 2020, the number of used cars newly registered reached about 3.95 million, which was an all-time high. The figure for this year is expected to remain similar to last year's, as 3.28 million used cars were registered as of October.

The industry view is that the country's used car market was worth around 39 trillion won ($32.7 billion) in 2020, and the figure is expected to grow to 50 trillion won by 2025 with an average annual growth rate of 5 percent.

As people are increasingly purchasing used cars, consumers are increasingly calling for allowing domestic automakers to enter the certified used car market. This is because consumers expect domestic car brands could increase transparency in the used car market, which has been deeply distrusted due to existing opaque transactions.

A survey conducted by the Citizens United for Consumer Sovereignty in April, 79.9 percent among 1,000 adults aged between 20 and 60 said the used car market is currently opaque and underdeveloped, so there needs to be improved. Carmakers here are discussing entering the used car market with used car dealers, but no clear conclusion has been reached at the moment.

Industry analysts said the used car market here was buoyed thanks to the advent of online used car trading platforms. They said transactions have become much easier due to those used car platform operators providing easy, transparent payment and refunds for used cars online.

“As non-face-to-face transactions have been preferred since the start of the COVID-19 pandemic and demand for quality used cars is increasing, business-to-customer transactions are expected to increase in the future. So, online platforms like K Car, which are taking responsibility for quality, will benefit greatly,” said Ahn Joo-won, an analyst at Yuanta Securities Korea.

Meanwhile, market tracker IHS Markit presumed that the reduced car production will recover slowly through 2022 as the semiconductor shortages remain a challenge.

“Overall, while manufacturing operations in most regions are expected to improve, capacity constraints within the semiconductor supply chain remain the single most influential feature of the forecast,” said Mark Fulthorpe, executive director of light vehicle production forecasts at IHS Markit. “As the semiconductor tide recedes, will this expose further risks to the auto recovery? Threats elsewhere within the supply chain could become more apparent as chip supplies improve, notably logistics, worker-related issues and key raw materials shortages.”