The Korea Fair Trade Commission (KFTC) has approved the merger of Lotte Rental with Texas Pacific Group (TPG), signaling an intensification of competition in South Korea's rental car market. With Lotte Rental and SK Rent-a-Car, both considered major players, moving away from their parent companies to embrace private equity ownership, analysts suggest that the competitive landscape is shifting from synergy among corporate affiliates to rivalry in the capital markets.
According to industry sources, the KFTC determined that the acquisition of Lotte Rental shares by Lexicon Korea Holdings, a TPG affiliate, would not restrict competition. TPG operates private equity investments in South Korea and is involved in the infant nutrition business through its local subsidiary, HB F&B. The KFTC concluded that TPG's business operations do not overlap with Lotte Rental's core vehicle rental services, categorizing the transaction as a non-restrictive merger.
Previously, Hotel Lotte and Busan Lotte Hotel had signed a stock purchase agreement to sell 61.2% of Lotte Rental to TPG at a price of 59,000 won per share, totaling approximately 1.31 trillion won. Following this, TPG filed for the merger with the KFTC in accordance with fair trade laws.
Last year, Lotte had attempted to sell its stake in Lotte Rental to Affinity Equity Partners, but the deal fell through due to concerns over market monopolization raised by the KFTC. As a result, both SK Rent-a-Car and Lotte Rental have transitioned to private equity ownership.
The recent interest from private equity firms in the rental car market is attributed to the potential for stable cash flow. The rental car business is less sensitive to economic fluctuations and can secure consistent revenue and cash flow from corporate clients over set periods, making it an attractive investment.
Additionally, the residual value of used cars is guaranteed, allowing for further revenue generation through sales or exports. TPG, for instance, has a portfolio that includes mobility-related businesses such as Uber and Kakao Mobility.
Currently, the domestic rental car market is dominated by Lotte Rental and SK Rent-a-Car. As of the end of last year, there were 1.296 million registered rental cars, with Lotte Rental leading at 255,553 vehicles (19.7% market share), followed by SK Rent-a-Car with 195,008 vehicles (15%), and Hyundai Capital with 157,607 vehicles (12.2%).
With a market share gap of around 5 percentage points between Lotte Rental and SK Rent-a-Car, industry experts anticipate that the acquisition by private equity will further intensify competition in the rental car market. To enhance corporate value, both companies will need to increase their market share quickly, which could lead to aggressive price competition. This is particularly likely in Jeju, where the market share difference is around 1 percentage point.
An industry insider noted, "With the owners of the top two rental car companies shifting to private equity, the competition is transitioning from 'inter-corporate rivalry' to a 'profitability competition dominated by private equity.' Unlike the corporate culture that considers group synergy, brand value, and long-term strategies, private equity firms prioritize returns on investment, making metrics like EBITDA and dividends increasingly important."
Concerns have also been raised that the intensifying competition could destabilize the existing rental car ecosystem. The rental car business is capital-intensive, involving significant financial costs, depreciation, insurance, and maintenance. If the industry engages in prolonged price wars, the financial burden on private equity firms could increase, potentially leading to a collapse in the residual value of used cars.
One rental industry representative warned, "If private equity firms adopt a strategy of sacrificing prices to rapidly expand market share, the entire industry could devolve into a chicken game. In such a scenario, all ecosystems related to automobiles, finance, used car distribution, and vehicle maintenance could collapse."
* This article has been translated by AI.
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