From rapidly expanding personal debt levels to a looming legal crisis over undisclosed commissions, the UK’s once-stalwart car finance sector has seldom faced so many foundational challenges at once. Over the past decade, as dealerships, banks and specialised finance houses scrambled to supply the relentless demand for new vehicles, the market’s structure has changed dramatically. Newer financing methods like Personal Contract Purchase (PCP) have become commonplace, replacing outright ownership as the dominant mode of acquisition, yet lurking beneath this boom are warning signs all too reminiscent of previous financial upheavals.
Central to the growing crisis is the hidden commissions scandal, rooted in the symbiotic relationship between car dealerships and finance providers, where dealers were frequently incentivised to arrange finance agreements that maximised their own commissions rather than securing the most competitive interest rates for consumers. Consequently, many customers, often unaware of the mechanics of their financing deal, were paying inflated interest rates, not because of their creditworthiness, but because dealers had a financial incentive to push more expensive loans against the best interests of their own customers.
However, after a landmark Court of Appeal ruling in 2023, which deemed these hidden commissions unlawful, a tidal wave of legal challenges has erupted, with compensation claims already surpassing 60,000 complaints lodged with the Financial Ombudsman Service. But this is only the beginning and there are expectations that this scandal could rival that of the £38 billion paid out for the PPI mis-selling scandal, with estimates ranging between £30 billion and £44 billion of expected compensation.
Unsurprisingly, the current Government is acutely aware of the possible fallout from this emerging scandal, with Chancellor Rachel Reeves attempting to intervene in the Supreme Court process, expressing concerns that massive compensation pay-outs might destabilise Britain’s car finance infrastructure. Reeves insisted that her goal is primarily to protect working families and prevent the UK’s car finance market from imploding under the weight of potentially gigantic pay-outs. However, the Supreme Court has thus far blocked the Chancellor’s attempt to formally weigh in, underscoring the judiciary’s independence in the case, potentially forcing major lenders to absorb billions in retrospective compensation.
In the midst of this precarious situation stands Motability, a powerful entity owned by major banks and operating as a not-for-profit that manages a fleet of over 800,000 vehicles and logged revenues just under £7 billion in 2024, making it the country’s largest fleet operator. The question now remains whether Motability’s dominance is masking deeper fractures within the car finance market, artificially boosting sales volumes in a sector that otherwise might have shown a more significant contraction and concealing the scale of a broader bubble. At the same time, political scrutiny of Motability’s role in the car market is intensifying, with mounting pressure on Government spending and a growing debate over corporate governance in publicly linked institutions. This could potentially lead to the scheme facing further regulatory intervention or budgetary constraints in the near future.
Adding fuel to the fire, Labour’s proposed overhaul of welfare spending, including substantial cuts to disability benefits supporting Motability, places the organisation squarely in the crosshairs. Due to the industry’s growing reliance upon new car purchases funded via the scheme, its continuation is critical for market stability. Policymakers face the complex challenge of maintaining Motability’s social objectives without exacerbating market vulnerabilities. With legal and economic pressures growing, the UK’s car finance sector appears increasingly fragile, raising urgent questions about how long it can withstand these compounding threats.
In a sector that employs thousands and generates billions in transactions each year, any significant shock has the potential to reverberate well beyond the showrooms and into the broader financial landscape. If the legal and economic headwinds facing the wider car finance market continue to intensify, particularly with the looming threat of multi-billion-pound compensation payouts, the sector could be edging towards a long-overdue reckoning. In a market increasingly reliant on subsidies and opaque lending structures, the question is no longer whether cracks are forming, but how long the foundations can hold.
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Surely there are two truths which the narrow minded regulators and lawyers will not acknowledge.
first, many borrowers had poor credit ratings so higher charges were needed to justify the loans
Second, dealers did not mind how they made their margin. If it had not been commission it would have been a higher sale price.
A noteworthy aspect is that financial regulators knew (or ought to have known) how motor finance worked. Tgey should have known snd likely did know since the FSA was founded. They did nothing for decades, leading lenders snd dealers to suppose all was well.
During several of those laid back years the heard of the regulator was the current Governor of the Bank of England.
Sorry about typos in all my posts. I have to replace my keyboard. Please be patient with me!
Apparently almost 1 in 5 new car purchases are made through Motability. The idea that the taxpayer should be funding all this debt is mad. The idea that all these people need the taxpayer to fund their transport is equally mad.
Motability needs to be brought back to what it was initially intended to be, a means to modernise the old 3 wheel invalid carriages we used to see knocking about. Achieving this without a lot of blood on the carpet will be difficult. Someone’s got to stand some huge losses, the choice is between taxpayers, banks, or Motability users. Motability users, in general, don’t have any money, so it’ll come down to the consortium of banks operating the Motability scheme or the taxpayer, or both.
Why should I have my pocket picked to pay for a car for my neighbour? On top of everything else this is a hugely inefficient transfer mechanism, before we even start to look at the perverse incentives.
I know someone with a Motability car – think it’s a BMW X1. Lovely motor. Her son is genuinely profoundly disabled and public transport is not a sensible option for them but he has no physical issues so any working car would do. Thing is, she also has a personal car- another BMW, albeit a bit smaller and more modest. She has worked all her life and paid her taxes but does she really need two cars? She’s not rich but neither is she especially poor. I don’t know what the criteria are and whether she makes a contribution but it seems a bit mad to me. Her son doesn’t even live with her anymore.
I for one shall be sad if Motability goes. A few years ago I picked up a 3-year-old ex-Motability Qashqai, 9000 miles on the clock, as-new condition, for well under half the new list price. Hoping to find something similar when this one expires.
You paid half the price when you bought it 2nd hand, but, as a taxpayer you’d already paid full price for it 3 years previously.
So, you actually paid 150% the list price for that car, just that someone else got to use it for 3 years before you got your hands on it.
If you think you got a good deal then I’ve got a bridge to sell you.
I have a friend whose husband is effectively disabled following an industrial accident (denied by his employer) and compounded with old age. They got a Motability car a couple of years ago. That allowed them to sell one of their own cars (and pocket the money) but they keep the other one going – so they are still a two-car household despite the fact that the husband is too incapacitated to leave the house on his own since he can’t get a wheelchair out of the car on his own and he can’t walk any distance unaided.
They could easily have afforded to sell one of their cars and buy one more suitable for him.
Every single problem caused by the government and its interventions. And yet still the country wants more…
https://www.sadrabbit.media/p/subsidies-scandal-and-shaky-foundations
“in the midst of this precarious situation stands Motability, a powerful entity owned by major banks and operating as a not-for-profit, that manages a fleet of over 800,000 vehicles and logged revenues just under £7 billion in 2024, making it the country’s largest fleet operator. The question now remains whether Motability’s dominance is masking deeper fractures within the car finance market, artificially boosting sales volumes in a sector that otherwise might have shown a more significant contraction, concealing the scale of a broader bubble.”
The UK Motability Fleet is, or certainly used to be the largest publicly (government) owned car fleet in the world outside China.
VW Group, BMW, and the rest are not car companies. They are banks, which also happen to manufacture cars.
Wasn’t GM a pension fund, with a car manufacturer attached?
Expanding on your point, when Dr North was looking at the ramifications for the UK car plants post Brexit he noted that Ford was really a service company with some car making tacked on. There was the financing and banking but also the servicing of vehicles that altogether outweighed vehicles.
I have for many years looked on with increasing concern as the footwear of those who drive high-end German sports cars has gone from black leather shoes, to blue suede moccasins, to running trainers and then, most recently, to pink fluffy slippers and no socks.
Probably families where a parent has managed to score a claim for Disability Living Allowance (DLA) as it was now replaced by Personal Independence Payments and thus qualified for the Motability scheme. However, what happens if the claimant / parent cannot drive? Well one of their sainted children does the driving innit. And of course the little darlings won’t be seen dead in a boring Peugeot or the like so it’s got to be a Beemer and Mum and Dad can manage with taxis benefit claimants only ever travel by taxi.
Ain’t life grand?
Wait for it…
“UK Motability is too big to fail”
Not quite M A k. Don’t forget Kneel is under orders to destroy British industry. Wiping out car manufacturers is a cracking start.
I used to work with someone who commuted in his fathers Motability car. It’s a scam.
My erstwhile neighbour used to use his sister’s Motability car. Also I noticed salesmen in car showrooms seemed to show great interest in the possibility that you might make a purchase through the scheme. It’s been a scam for decades.
Especially as Motability is heavily pushing battery cars.
Whatever happened to personal responsibility? No-one forced people to take these loans out. All payments would have been clearly set out before taking out the loan (if they weren’t then that is another issue altogether and I am sure the FCA would simply order banks/brokers to refund the loan) so if a customer chose to take that loan (rather than say shop around with another financial provider for a better offer) then that is on them. As EppingBlogger states, if dealers are penalised for this then they will simply hike their prices which will impact everyone, not just those taking out credit.
There is a lot of corruption wthin that scheme. Not on the part of malingering benefits claimants but simply because it is a bit of a closed world. At MOT level at every level. It is a good scheme though. Makes a big difference to someone who has severely impaired mobility to have someone who can drive them around. Makes life a bit more pleasant.
Ah yes Motability. There are people near us on benefits and in social housing driving far newer and better cars than we could afford. So much for the benefit cap, which when all the extras are added, such as motability and reduced or no council tax does not exist in reality
The shift to EVs is also having a big impact on Motability. https://www.autocar.co.uk/car-news/consumer/motability-takes-%C2%A3565-million-blow-costs-soar
and https://www.youtube.com/watch?v=pJdGFHaY-Hg