UK Auto Finance Insights – May - Asset Finance Connect

The bumper used car market of the first quarter of 2025 will have eased nerves at finance companies, given the weak performance of all new vehicle sales.

The used car market surpassed the 2 million mark for the first time in a single quarter since 2019, representing the ninth consecutive quarter of growth. While the high levels of demand will be welcome, Auto Trader warned that the rising volumes of used EVs will intensify pressure on used prices.

To mitigate these pressures, leasing companies are rapidly developing used car leasing products, rather than take the residual value hit on end-of-contract EVs. The British Vehicle Rental & Leasing Association has registered an 8.5% quarter-on-quarter rise in volumes in re-lease type solutions.

Consumers are still buying cars on credit, according to the FLA, which tracked a 3% year-on-year rise in consumer car finance in Q1, suggesting that consumers have not been deterred by commission disclosure practices.

But claims management companies are increasing calls for compensation for the mis-selling of motor finance, with the Financial Ombudsman Service (FOS) reporting a 49% hike in complaints in the second half of 2024. FOS upheld 33% of complaints in consumers’ favour in the second half of 2024, but only 25% of complaints brought by professional representatives.

The Supreme Court is due to rule in July on the commission disclosure cases it is reviewing, and Ford Credit Europe has become the latest motor finance lender to set aside funds (£61 million) to cover compensation due for mis-sold car finance. Research by Asset Finance Connect has found that more than half of lenders are only ‘partially’ ready for the potential outcomes of the Supreme Court’s verdicts.

New car and van sales both slumped in April, with the new car market down -10.4% year on year, the sixth month-on-month fall in the last seven months, and -25.3% behind pre-pandemic April 2019. The SMMT attributed the drop to economic uncertainty, weaker consumer confidence, and buyers bringing purchases forward to March to avoid higher Vehicle Excise Duty charges.

Fleet sales, which account for 60% of new car registrations, were down -11.9% in April, and further evidence of a fragile economy came from Fleet Evolution, a fleet management and salary sacrifice car scheme provider, which reported a 43% jump in early terminated electric and hybrid cars as redundancies start to impact its client base.

The fifth consecutive month of decline in light commercial vehicle sales, down -14.9% year-on-year in April, underlined the cautious spending habits of businesses.

Business reluctance to renew LCVs stalls an already reluctant electric LCV market, with the SMMT warning that companies are waiting up to 15 years for grid connections to support depot charging and the high powered charges required by HGVs.

On a more positive note, the UK now has over 100,000 public EV charge points, and 76% of companies say sustainability is a key consideration in their fleet decision making. However, according to a study by Alphabet, one-third of UK fleet managers feel misinformed or confused about their e-mobility options, and many are unaware of the Government incentives available to help fund EVs.