Is Barclays’ decision to retreat from motor finance sector a trend for the future?

He said: “It could be that they still have an appetite for financing motor vehicles, but just not in an intermediary manner. Taking account of the fact that they bank a substantial percentage of the UK population, along with products such as Barclaycard, they may feel that they have enough ‘in-house’ customers to market to in respect of car purchases.

“Equally there will be better return on investment from other parts of Barclays, especially with the investment required in systems and compliance for the motor point-of-sale arena.”

Another potential factor affecting the market is the increasing complexity of ensuring compliance when working through intermediaries.

Cottle said: “As a bank, perhaps Barclays found that with the latest FCA report on Motor Finance, it would be far more difficult to fulfil the necessary obligations in terms of robust point of sale processes. They may have become increasingly uncomfortable with the potential for individual dealer conduct risk.”

However, Cottle added: “In my experience the vast majority of dealers have acceptable controls and systems and are good ‘partners’, but the pressure on lenders to have solutions across all their introducers has undoubtedly increased. The FCA will continue to monitor this area and increased diligence is certainly required by all concerned.”

Other concerns, according to Cottle, could include residual value exposure from the guaranteed minimum future value of PCP products, adding: “We are currently in a period of increased uncertainty due to a number of factors. Therefore, a contingent liability for GMFV’s is a constant topic at board level.”

Lenders face reduced revenue and margin pressure

As the pressure on motor finance companies continues to mount, many lenders and dealers will be forced to evolve, says Mark Standish, chief executive officer of MotoNovo.

He has identified a variety of pain points in the industry which have been taken into consideration by a significant number of major lenders.

He said: “While recent years have seen new entrants move into the market, the current economic climate is not as favourable for lenders. We are beginning to see a reversal of this trend, with exits and consolidation among the lending community.

“The automotive sector must pay attention to developments like this which further indicate the importance of the market becoming more buoyant and sustainable in order for dealerships to thrive.”

According to MotoNovo, signs of imminent change have been noticeable in the industry for some time, such as the increasingly cautious outlook towards securitisation overall. This has been predominantly notable in PCP-centred portfolios, where “prudence due to concerns about residual values has meant that lenders have faced reduced revenue and margin pressure.”

This coincides with an increasingly active market; new and existing players have sought to increase lending, and the resulting climate is one of over-supply and margin erosion.

Standish added: “We’re sorry to see major players unwind their operations, as we believe healthy competition is crucial in driving the innovation and change required to make used car finance a leading choice for consumers. But we should expect further reshaping of the industry in the months ahead.

“During this market shift, it will be crucial for dealers and lenders alike to embrace change, flex with the market, and always strive towards continual improvement of customer outcomes to ensure fewer exits from the market and avoid restricting the level of liquidity within the sector.”