SEOUL, March 4 (Korea Bizwire) – The South Korean car sharing industry is picking up speed to expand beyond the niche market to go mainstream as the government is set to ease regulations on the industry’s operation as a way to curb congestion and pollution.
Short-term, automated car rentals entered the local business scene in 2011 as startup companies joined the global wave of the sharing economy to target tech-savvy youngsters in the densely-populated, highly-networked nation.
Members can preview the cars available and the associated outlets through the Internet and mobile devices. A smart key embedded in a membership card or smartphone application can be used, making pick-up and drop-off simple and convenient. Unlike regular services that rent a car by the day, the car sharing service rents cars by the hour, with insurance coverage included.’
First targeting the hip, urban dwellers in the sprawling capital city of Seoul, the car sharing service has expanded across the nation on the back of the widespread usage of smartphones, with its market value skyrocketing from 4 billion won (US$3.4 million) in 2012 to 90 billion won as of 2015.
Other forces pushing car sharing further into the mainstream are the rising costs of car ownership coupled with a growing number of single-person households.
“Having a car is cool, but the ownership experience isn’t cheap. In that sense, having an alternative to public transportation gives me more leeway to get around the city,” Lee Hae-min, a 29-year-old office worker in Seoul, said. “I recently delayed my plan to buy a car after using the sharing service to go to the outskirts of the city on weekends. Maybe I’ll get one when I marry and have a baby.”
According to a survey by the Seoul Institute, a think tank under the Seoul government, 85.5 percent of users were in their 20s or 30s. The greatest usage was during the weekend and around midnight when public transportation is hard to find.
While leading startups, including SoCar and GreenCar, have mostly focused on expanding the fleet of cars and parking spaces to increase membership, the growing demand for improved accessibility and reliability has led the government to play a role in fostering the emerging industry.
In late February, the transportation ministry said it will ease parking regulations to allow the startups to more easily use public parking lots and develop a real-time driver history verification system jointly with police authorities.
“Cars sit idle most of the time, except when people drive them. Car sharing is more cost-effective than car ownership considering the expenses of insurance, gas, taxes and maintenance fees,” said Park Ji-hong, an official at the Ministry of Land, Transportation and Infrastructure. “The government came up with support measures because improving mobility is important for a city to become a sustainable community.”
The government estimated sharing one car can eliminate about 8.5 vehicles from the city, which could save 28.9 billion won in household spending a year.
Industry officials expect that the new parking rule will give a leg up to their efforts to expand to urban areas.
“We have expanded parking spaces by directly negotiating with parking lot owners and making long-term contracts, which is a time-consuming process. The eased parking rules would give us the right impetus to expand access points and improve operational efficiency,” said Lee Sang-heon, a public relations official at SoCar.
The demand for matching driver’s license information in real time has also risen after a car sharing member caused a deadly traffic accident in Seoul last year. The driver was later found to have borrowed the vehicle after his driver’s license was suspended for driving under the influence.
“Being able to check a driver’s license whenever a driver borrows a car is important to screen out unqualified drivers for the safety of others,” Lee said.
Taking advantage of eased regulations, SoCar aims to increase the number of cars to 6,000 and double its membership numbers to 6 million this year. Company officials say they expect to turn a profit in the first half, a first for a local car sharing operator.
The growing interest in urban car sharing also came under the radar of traditional car rental services looking for new growth drivers amid stagnant domestic consumption.
Lotte Rental Car, the nation’s biggest rental car company, has been most aggressive in capitalizing on the latest trend after acquiring GreenCar, the No. 2 car sharing company, in 2011.
While some worry that car sharing can eat up the market share of existing rental services, Lotte Rental says their target customers rarely overlap with each other. Those in their 20s and 30s are the main customers of GreenCar, while elderly and business customers prefer the regular rental car service, it said.
“The car sharing service is expanding the overall rental market by creating fresh demand for short-term car use in urban areas among younger customers,” said Yoo Ho-sung, an official at Lotte Rental Car. “So far, the two business models are complementing each other to create a win-win situation.”
Industry officials say the main focus of their business will shift from expanding membership to improving the quality of service to better meet customer demand.
“We have mostly focused on expanding the service in the early stage, but it is time to put priority on improving the quality of service to retain customers with better experience,” Yoo said. “We have stepped up efforts in maintenance and repair services while launching public campaigns to encourage customers to use cars like their own for the next drivers.”
Major cities hope the car sharing service will appeal to a wider group of customers to potentially reduce the number of cars on the road and therefore tackle traffic and air pollution problems.
“Although there were discussions to revise regulations to deal with issues in line with rising memberships, the sector came into the limelight only recently as part of broader interest in the sharing economy,” Shin Sung-hoon, a transportation policy official at the Seoul Metropolitan Government, said.
“As more users are using the car sharing service, it is time to provide the right framework to facilitate the service and handle customer complaints to mature the business.”