Bad deal for Hey Dealer
It was arrogant of me to think that I could offer a word of comfort. I was the one who ended up learning something and was deeply touched. The old Chinese adage that there is no shame in borrowing wisdom from the young dawned upon me as I sat across from 25-year-old Park Jin-woo, who runs the mobile app Hey Dealer, which offers reverse auction on cars. Park was recently forced to close down because he violated motor vehicle regulations.
The controversy over Hey Dealer is ongoing and closely watched as a yardstick of the success of the country’s campaign to nurture a “creative economy.” It is the first test of the old-fashioned style of lawmaking, when traditional brick-and-mortar business and manufacturing was the mainstream. Can it adapt in a fast changing society where information and computerized technology drives the economy?
The online and mobile site was launched last January. It sells second-hand cars to dealers on behalf of its customers. It filtered out 680 dealers under a strict set of rules and deals with a group of 650 scrupulously-selected dealers. In just a year, transactions reached the 30 billion won ($24.7 million) mark. Hey Dealer’s own revenues hit 300 million won. A start-up began by three Seoul National University graduates now has a staff of 15. It received a special loan of 190 million won from the Small and Medium Business Administration granted to promising start-ups. The company abruptly had to switch off its online site on Jan. 5. It became an outlawed business due to a revision in the law on motor vehicles.
Under the revision, anyone auctioning off a car must receive approval from the head of the city or province. To gain approval, the business must own a parking space of more than 3,300 square meters (35,520 square feet) and auction space of more than 200 square meters. That regulation originally applied to brick-and-mortar businesses but the government included online services for consumer protection. The law takes effect from early February.
“Why can’t cars be traded online?” asked Park. “We used to try on shoes but now we buy them online. Shopping malls these days provide all the necessary details - the length, width, color - so that we can save the trip to a store. A strict refund policy also helps. Any company that does not provide such service cannot survive. This is the way of e-commerce. Isn’t this what consumer protection is about?” he said plaintively.
What were authorities thinking when they changed the regulation? In the United States, a company called TrueCar offers a website for both new and used car buyers and dealers. Founded in 2009, the company went public last year. Its market capitalization is now nearly 1 trillion won. There are numerous online car-dealership platforms for used cars in China. E-commerce giant Alibaba has also joined the market. There are a dozen in Japan. “At such rate, the local used-car market could be eaten up by China,” Park said.
He saved his harshest words for the authorities. He has declined to talk to the press because he had to think of his staff and 650 dealers, which are depending on the reopening of the business. A few days earlier, Minister for Land, Infrastructure and Transport Kang Ho-in pledged that the government will revise the law once more to save a business like Park’s.
Fixing a law over and over does not solve the fundamental problem. The government must work on the entire framework of regulations. Countries like the United States, where start-ups flourish, run things the right way. Whenever a problem occurs, the business or industry discusses the matter with authorities to make modifications. That kind of rational business environment is responsible for the rise of the Decacorns - highly-successful tech start-ups with valuations of over $10 billion - like car-sharing service Uber and space-sharing service Airbnb. In Korea, everything is regulated except for a few market-proven businesses. Kang, the minister, said that “a creative economy cannot be built unless these regulations go.” We second that notion.
The president likes to complain that nothing gets done because of the legislature, which in turn blames her political opposition. She blames the legislature’s stalling of economy-related bills that she believes will help the struggling economy. She is not entirely wrong. What’s more urgent is making new laws to fix the outdated ones. If a child is the country’s future, a start-up is its economy’s future. Thousands of young entrepreneurs will lose hope and passion if an aspiring start-up is stopped by an old regulation that serves to protect the vested interests of mainstream players. In such a habitat, we will never come close to a creative economy. In such a habitat, we will wither.
JoongAng Ilbo, Jan. 21, Page 30
The author is an editorial writer of the JoongAng Ilbo.
by Yi Jung-jae