UK Auto Finance Insights – April

With billions of pounds of compensation potentially at stake, the court has now heard the appeal brought by Close Brothers and FirstRand (trading as Moto Novo), following the Court of Appeal’s shock ruling in three cases involving cars purchased on finance.

Among a number of legal points, Supreme Court judges are considering the relationship between customers and car dealers, when acting as credit brokers, including whether dealers owe a fiduciary duty to consumers. Both the Financial Conduct Authority (FCA) and the National Franchised Dealers Association argue that the Court of Appeal went too far in its ruling verdict last year.

To help lenders prepare for the outcome of the case, Asset Finance Connect is organising a workshop with legal experts on 28^th April.

The Supreme Court is not the only risk facing the industry, with the electrification of the vehicle parc continuing to cause concern among both vehicle manufacturers and lenders with residual value exposure.

The Government has now introduced new flexibilities for OEMs to help them meet the terms of the Zero Emission Vehicle Mandate, and manufacturers will be able to sell new hybrid and plug-in-hybrid cars until 2035, although the phase-out date for petrol and diesel cars has advanced to 2030.

On the demand side of the industry, however, there are no financial incentives for private motorists to switch to electric. The Association of Fleet Professionals says the Government needs to do more to make EVs feel a secure and sensible purchase, such as certifying the health of used EV batteries and making charging as cheap and accessible as possible.

EV residual values are under pressure as the supply of both new and used battery-powered cars outstrips demand. The Vehicle Remarketing Association has recorded a 23% increase in the number of pre-registered EVs, which are taking much longer to sell because manufacturers are heavily incentivising the purchase of brand new EVs.

For lenders, new car finance volumes were up 11% in the first two months of the year in the consumer market, compared to the same period of 2024, but used car volumes were 7% down as many households put car replacement on hold. Business car finance volumes were also down, 3% lower than the same period last year.

This figure mirrors the new van market, where Q1 registrations were 3.2% lower. As a bellwether of the wider economy, the fourth consecutive monthly fall in new LCV registrations decline in van sales is a concern, and serves as evidence of weak business confidence holding back investment.