Used car dealer lot in Seoul / Korea Times file

By Kim Hyun-bin

The local used car market is starting to cool off as the economic downturn and soaring interest rates are leading to a sharp decrease in sales of secondhand cars nationwide, according to industry officials, Thursday.

Due to the COVID-19 pandemic, the used car market experienced a temporary and unprecedented price hike making some used automobiles more expensive than purchasing new models due to favorable factors such as the overlap of low interest rates, and supply shortages of semiconductors for new vehicles. However, the tide has turned with used car sales rapidly shrinking as not only business loans but also consumer installment payment rates continue to rise sharply.

Some dealers say there has been a noticeable decrease of more than 20 percent in the number of customers visiting used car lots and the high interest rates have become a grave burden for dealers as they try to bring in vehicles to sell from used car auctions.

Until July of this year, the inventory finance rate averaged 5.9 percent. However, it has risen sharply since August and is now approaching 11 percent. The profit structure for dealers has collapsed as interest rates have already exceeded the margin rate of 7 percent to 8 percent per car.

Due to this, auction houses, which serve as a "wholesaler" for used cars, are also on the decline as dealers are less eager to take part in auctions through loans.

Consumer purchasing power is also on a rapid decline as interest rates at major banks are exceeding 10 percent.

"I was planning on purchasing a used foreign car but the interest rate is too high, so I decided to postpone my decision," a woman in her late 30s surnamed Park said.

Experts advised that in an era of high interest rates, it is necessary to secure as much cash as possible when purchasing a vehicle.

K Car, a major used car sales company, analyzed the average market price in November targeting 740 domestic and imported models. The rate of decline in domestic used car prices grew from 35 percent in October to 54 percent this month.

Imported cars displayed an even greater rate of decline, increasing from 39 percent in October to 62 percent this month.

"In general, used car prices tend to fall in November and December in preparation for a change in the model year," a used car industry official said. "But used car prices have risen quickly over the last few years, creating a psychological resistance level which is becoming even more burdensome for customers to make a purchase."