Korea Rent-A-Car Business Association Federation speaks out

'Specialty finance firms already competing in long-term rental market'

'4 finance firms win more public procurement than 24 small businesses combined'

[Provided by the Korea Rent-A-Car Business Association Federation]
[Provided by the Korea Rent-A-Car Business Association Federation]

The car rental industry is pushing back against financial regulators' plans to ease restrictions on vehicle rental operations by specialty credit finance companies, commonly known as "yeojeon" firms. Industry groups argue that allowing financial companies that supply vehicle purchase funding to expand directly into car rental would undercut smaller rental operators who cannot match their financial firepower.

The Korea Rent-A-Car Business Association Federation said Monday it opposes any relaxation of the cap on vehicle rental volume that specialty credit finance companies may handle as a secondary business.

Under current rules, specialty credit finance companies — including capital finance firms — may engage in vehicle rental as a secondary business alongside their core leasing operations. However, limits on the scale of rental activity are in place to prevent the secondary business from outgrowing the primary one.

The Financial Services Commission said at an industry meeting last November that it would review easing the current rental volume cap, which is set at the level of a firm's core business performance. The rental industry has objected, saying the arrangement would create "a structure in which a financial company that supplies funding simultaneously becomes a competitor for the same customers."

Capital finance firms are currently permitted to operate both auto leasing and car rental businesses, while general car rental companies focus on vehicle hire as their core activity. Rental companies also frequently borrow from capital finance firms to fund bulk vehicle purchases.

Financial regulators have gradually expanded the scope of specialty finance firms' rental activities in the past. In 2020, the FSC eased rules to allow business-to-business rental of items not covered by leasing contracts. Even then, separate standards on product categories, industry sectors and transaction volume were required to protect the small and medium-sized rental market. The FSC distinguishes leasing — a financial arrangement in which a customer uses a specific asset for a set period and pays in installments — from rental, in which an asset is lent out and returned at the end of the contract.

The federation said deregulation would allow specialty finance firms to encroach on small and medium-sized rental operators. An analysis of vehicle rental service contracts on the Public Procurement Service's Narajangteo platform found that 746 contracts worth about 55.4 billion won were signed between Feb. 26 and Aug. 25. Of those, eight large companies won 384 contracts worth 31.8 billion won, three mid-sized companies won 309 contracts worth 21.5 billion won, and 24 small and medium-sized enterprises won 53 contracts worth 2.1 billion won.

Particularly striking, the federation said, was that four specialty credit finance companies secured 40 contracts worth about 2.6 billion won ($1.9 million) — exceeding the combined 2.1 billion won won by all 24 small and medium-sized enterprises. The average contract value per deal was also about 65 million won for the finance firms, roughly 1.7 times the approximately 38 million won recorded by small businesses. The federation noted that all of the contracts were long-term vehicle hire agreements, arguing that capital finance firms and small rental operators are already competing in the same long-term rental market.

The revenue structure of small rental companies has also been shifting toward long-term contracts. Advances in vehicle safety technology have reduced the volume of replacement vehicles provided after accidents, while car-sharing services have grown to dominate the short-term rental market. The federation estimates that for a small operator with a fleet of 1,000 vehicles, about 700 are now tied up in long-term contracts.

"The assumption that small car rental operators deal only in short-term hire or accident replacement vehicles does not reflect the current market," a federation official said. "Even with the rental volume cap still in place, four specialty finance firms are already capturing more public procurement business than 24 small businesses combined."

The competitive imbalance is even more pronounced in the market for individual customers and small corporations, the federation said. While public procurement contracts are subject to open bidding conditions and published prices, contracts in the individual customer market are typically concluded at financial or automotive sales touchpoints — giving financial companies with capital and distribution networks a structural advantage.

The federation also cited regulatory practices in other countries. In the United States, it said, bank leasing is restricted to non-operating, full-recovery arrangements with caps on residual value. The EU classifies financial leasing as a financial activity but does not treat operating leases as part of the financial sector.

"Considering overseas cases that restrict operating leases and rental — where financial companies directly bear residual value risk — domestic regulations already permit rental on a comparatively broad basis," the federation said.

The federation called for three steps before any easing of the rental volume cap: an independent market impact analysis, consultations with related ministries overseeing market competition and passenger transport operations, and a review of the conflict of interest inherent in a structure where a funding provider also acts as a competitor.

"Regulators must first accurately understand what markets small car rental operators actually serve and how they operate before deciding whether to reform the system," a federation official said.


eyre@heraldcorp.com