A used car dealership in Janganpyeong, eastern Seoul, is seen in this March 11 file photo. Yonhap

The government ordered Hyundai Motor and its smaller affiliate Kia, Thursday, to delay their plans to enter the used car market by one year to minimize the impact of their advance on existing players.

In March, the Ministry of SMEs and Startups decided not to designate secondhand car sales as a "livelihood business" that must be reserved for small enterprises and startups, paving the way for conglomerates, such as Hyundai Motor Group, to enter the market.

The decision produced strong objections from the country's used car dealer associations.

The government has arranged several meetings between Hyundai Motor Group and representatives from the associations to narrow the gap between them, the ministry said in a statement.

But they failed to reach an agreement, and so the ministry ordered compulsory mediation on the matter.

The ministry ordered Hyundai and Kia to begin their used car business from May next year following a four-month test period, during which they are allowed to sell less than 5,000 high-quality and certified used cars, respectively, the statement said.

In other conditions, the government has limited the number of used cars the carmakers can sell for two years from May 2023 to April 2025.

Hyundai is allowed to handle 2.9 percent of the country's overall used car transactions from May 2023 to April 2024 and 4.1 percent in the following one year. Kia's corresponding figures are 2.1 percent and 2.9 percent during the same period, it said.

Hyundai and Kia have to purchase used cars from their customers who plan to buy new vehicles with their own brand badges.

They also have to put their used brand cars that have been on the road for more than five years and traveled over 100,000 kilometers up for auction, where existing small players participate.

The government will deliver an implementation order to Hyundai and Kia unless they follow the "recommendations." If the carmakers do not implement the order, their representatives could be sentenced to up to two years in jail or face a fine of up to 150 million won ($118,000).

The government's recommendations will remain effective for three years from May 2022 to April 2025, the statement said.

Hyundai and Kia recently outlined their used car business plans to expand customers' choices following the government's decision not to designate secondhand car sales as a livelihood business last month.

Hyundai said it will sell used cars that pass a strict quality testing process after purchasing its own brand vehicles that have been on the road for less than five years and traveled less than 100,000 kilometers.

Kia said it will take the same steps in its used car purchase program.

To coexist with smaller rivals in the used car industry, Hyundai said it will restrict its growth in market share in Korea from 2.5 percent in 2022 to 3.6 percent in 2023 and 5.1 percent in 2024.

Kia said it plans to restrict its domestic market share growth to 1.9 percent this year, 2.6 percent in 2023 and 3.7 percent in 2024.

In other programs, Hyundai said it will introduce a "trade-in" program, in which the company purchases used Hyundai brand cars from customers and offers discounts when they buy new Hyundai models.

Kia said it will allow customers to experience a used car they want to buy for one month and then decide on whether they will purchase it or not in a "subscription and purchase program."

Kia also plans to develop its own quality testing and certificate system for secondhand electric cars, as it aims to become a leading player in the used EV market.

The Korea Used Car Dealers Association (CARKU) and the Korea Federation of Use Car Dealers Association (KUCA) said the government's decision has put 300,000 jobs in the used car industry at risk and may result in massive job losses.

The country's used car market is around 2.6 million vehicles a year, with K-Car leading with a share of 5 percent and the remaining 95 percent composed of small dealerships and consumer-to-consumer transactions. (Yonhap)