The top two car rental companies in South Korea are transitioning to a private equity (PEF) system, intensifying competition with financial firms in the market. With powerful capital backing from PEFs and financial companies entering the fray, the battle for dominance in the car rental sector is becoming increasingly fierce.
According to industry sources on September 16, Lotte Rental withdrew from the National Car Rental Association earlier this month and joined the Korea Car Rental Business Association. SK Rental is also considering a similar move, suggesting a change in affiliation may occur soon.
This shift stems from the perception that the National Car Rental Association, based in Seoul, does not adequately represent the interests of full-service rental companies. In contrast to the Korea Car Rental Business Association, which opposes the easing of regulations on the rental limits for specialized financial companies, the National Car Rental Association has shown little action.
Financial firms are looking to expand their car rental businesses through regulatory relaxation. Discussions within the financial sector include proposals to allow specialized financial companies to exceed the current limit of 100% on their rental business ratio. The existing regulations restrict the average balance of rental assets for capital companies from surpassing that of their primary leasing assets. If these regulations are eased, financial affiliates could significantly expand their car rental operations. The Korea Car Rental Business Association has stated that the primary business ratio serves as the last safeguard against the expansion of non-financial operations by financial companies.
With strong funding capabilities, financial firms are increasing their market share, surpassing traditional rental companies in influence. As of the end of July, specialized financial companies held a 45.32% share of the domestic car rental market, compared to 43.08% for full-service rental companies, according to the Korea Car Rental Business Association. Seventeen financial affiliates account for nearly half of the entire car rental market, which is estimated to have around 1,200 rental companies operating in South Korea.
In response to the expansion of financial firms, the top two domestic car rental companies are accelerating their restructuring under the PEF system. SK Rental is working on improving its financial structure and simplifying its governance. On September 29, it plans to absorb Karina Mobility Service, a special purpose company established by Affinity to acquire SK Rental. This merger aims to streamline governance and enhance operational efficiency while reducing debt ratios by inheriting Karina's capital.
Lotte Rental is also on the verge of transitioning to a PEF system. After receiving approval from the Fair Trade Commission for the business combination, it plans to finalize its transaction with TPG by the end of October, following subsequent procedures such as a shareholders' meeting. There is speculation that combining TPG's existing investment portfolio, which includes Kakao Mobility, with Lotte Rental's vehicle operation and maintenance capabilities could expand their business scope.
Industry experts predict that if financial firms continue to expand their operations, the competitive pressure on full-service rental companies will increase. Kim Pil-soo, a professor at Daelim University’s Future Mobility Department, stated, "The starting line for competition is fundamentally different between financial firms and full-service rental companies, not just in market share. If the rental limits are eased, there is a possibility that market concentration will deepen around financial groups rather than fostering competition."
* This article has been translated by AI.
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