7 Jan 17

Operating lease on the rise

Although the operating lease market is not as mature as in Europe, the Koreans are catching up. Apart from the odd Japanese company, all suppliers are local. 

In the corporate car sector, 33.3% of 2013 sales were large saloon car models, suggesting that prestige is still important in the South Korean business car sector, or that business cars are more the preserve of senior executives (source: Roughly half of the corporate cars are leased (financial or operating), while outright purchase and finance represent the other half of the cake.

Local players like Hyundai Capital, Lotte Capital and SK Networks take the lion’s share on the financial lease side. The biggest growth, however, can be seen in the operating lease business, called long term rental in South Korea and dominated by local rent-a-car companies such as KT Kumho Rent-a-car, AJ Rent-a-car, Hyundai Capital, SK Networks and Redcap Tour. Europe- or US-based leasing companies are generally not represented in South Korea. The explanation is twofold: there are hardly any foreign companies in South Korea, and Koreans have a protectionist attitude.

Why long-term rental is popular

The biggest growth, however, can be seen in the long term rental business. The major international rent-a-car companies (Avis, Hertz, Sixt etcetera) do have a local office, but the local market is dominated by five big local businesses: KT Kumho Rent-a-car, AJ Rent-a-car, Hyundai Capital, SK Networks and Redcap Tour. They control more than half of the market.

The reason behind this growth can be explained by the advantages that rented cars (for both private and corporate customers) have over leased cars. First of all, they are exempt from any regional vehicle use restrictions as they are considered business-use cars. Also, rental companies can charge lighter fees than leasing companies because their cars are managed under business-use standards and are purchased in bulk. Interestingly, rental cars are also legally allowed to use LPG, which is cheaper than petrol or diesel. 

As car rentals become popular, rent-a-car companies are increasing. According to data from the Korea Rent-a-car Association, there were nearly 900 rent-a-car companies in 2013. Competition continues to heat up as financial companies, which were previously focused on auto leases, are also entering the long-term car rental business (source: “Renting or leasing cars is accelerating big time”, JOO KYUNG-DON, Korea Joongang Daily, September 11, 2014).

Authored by: Dieter Quartier