South Korea’s used car market has doubled in size over the past decade, with about 3.7 million vehicles registered for transfer last year. 

With tech advancements, cars can be analyzed and auctions are made online, inviting more customers to sell and purchase secondhand cars.

As the market grew, so did the market for imported cars, which are much coveted in the second-hand market.

According to the country’s largest second-hand car company SK Encar, about 26 percent of used cars registered with its database in 2018 -- 849,816 vehicles -- were imported cars.

The number has been on a gradual increase since 2012. The ratio was 11 percent in 2012, and surged to 20 percent in 2016. 

Market experts say the increase comes from the constantly growing number of new imported vehicles.

According to the Korea Automobile Importers & Distributors Association, 260,705 imported cars were newly registered in 2018, marking a 16.7 percent of market share. The number had increased by 11.8 percent on-year. 

Local cars, such as those from Hyundai and Kia, have also become pricier, which lowered the entry bar and created room for imported cars to join the market, they say. 

“If you add an extra 1 million won to 2 million won to the price of a new model from a domestic carmaker, you can purchase an almost-new quality of secondhand imported car,” said an industry insider. 

This has led foreign carmakers to actively run secondhand car businesses here with their own brand authentication systems, to instill trust in drivers buying their used models.

The so-called certified or approved used cars, which are directly purchased and sold by imported car brands like Mercedes-Benz, BMW, Audi, Lexus, Jaguar Land Rover, Infiniti and Volvo, have garnered huge customer attention in recent years. 

Six major imported car brands sold around 24,296 certified used cars here in 2018, which grew by 400 percent in three years. 

BMW Korea, which started a certified second-hand car service in 2005, becoming one of the first brands to do so, recorded over 10,000 units of second-hand car sales, while both Mercedes-Benz and Jaguar Land Rover recorded double-digit growth since 2015. In 2017, when Audi was hit by a suspension of sales over “diesel gate,” it sold 1,800 units of certified used car that year, despite the scnadal.

Certified used cars by imported carmakers are generally 5 to 10 million won more expensive than other used cars. It is because they go through tens of analysis categories to put the certification mark for cars below 5 years with less than 100,000 kilometers of mileage. 

After purchasing a certified secondhand car, a customer can receive maintenance services for up to a year. 

Other perks include lease or financial subsidies through a trade-in program when they return their used cars.

Industry insiders say running a certified secondhand car business for imported carmakers is a big opportunity for potential growth, considering the widespread distrust of the used car market in general.

“The public’s distrust in general used car market gives better image on imported carmaker’s certified secondhand cars. For imported carmakers, it is a lucrative business since they can purchase a used car at certain price and prevent the residual value from falling, at the same time, they can also promote sales of a new model, creating a strong brand loyalty for customers strategically connecting sales of new car and purchasing used car,” said professor Kim Pil-soo of Daelim University.

He added that not only the imported car brand’s image is enhanced through the word “certified,” but also that after-sales maintenance is also a money-spinning business. 

This has led supercar brands like Porsche, Lamborghini, Ferrari and Rolls Royce to expand the secondhand business here to grab customers. 

In February, Porsche opened its latest certified secondhand car center in Seoul, directly operated by its official dealer Autostadt. 

Porsche said its secondhand car business called Porsche Approved is run based on the global standard which involves a professional technician and a consultant to test 111 aspects of each car to finally decide on approval. 

Unlike the imported automakers’ significant presence in the used car market, Korean carmakers have been less visible.

In 2013, the Korea Commission for Corporate Partnership designated used car sales business as a business suitable for small- and mid-sized companies, deterring conglomerates from entering the business. According to the commission, the used car sales business is defined as a business that purchases used cars and sells them to the customer.

Although there is no legal binding power behind the policy, conglomerates are under pressure not to launch the business.

In 2017, SK Group sold its secondhand car unit SK Encar to a private equity firm due to limitations in expanding the business. 

Currently, there are only three secondhand car companies owned by conglomerates -- AJ Sellcar, K-car (formerly SK Encar) and Autoplus -- among some 5,900 used car dealerships. Their combined market share is only 3.5 percent. 

Following public opinion and local conglomerates’ appeal to also open the gate for them, the association has handed in a suggestion to the SME Ministry last year to actively allow more companies to operate businesses in the secondhand market. 

While the ministry has to respond to the association by May, industry insiders said the market expansion may become a double-edged sword. 

“Korea’s used car market is twice as big as market for new cars here. Once conglomerates join the second-hand car business, they can improve the somewhat unorganized used car market here, which is mostly run by individual or small-sized dealerships,” said professor Lee Ho-geun of Daeduk University.

“But large-sized companies joining the league may also increase the price standard of used cars at the same time,” he added.

By Kim Da-sol (ddd@heraldcorp.com)