Resilience trumps innovation for auto finance firms

Lenders feel forced to prioritise dealing with a storm of immediate challenges, rather than reinventing their businesses.

Automotive finance companies are focused on resilience and survival rather than innovation, as the industry faces a maelstrom of headwinds.

The commission disclosure crisis, electric vehicle residual values and a host of new entrant vehicle manufacturers are occupying boardroom bandwidth and starving new product developments of oxygen, according to senior executives.

“It’s never been harder for a lender and other intermediaries in the market than it is at the moment,” said Spencer Halil, managing director of Northridge Finance, speaking at Finance Connect’s Summer Conference.

Two to three years ago, lenders were looking to transform their business models in line with the zeitgeist of ownership to usership, but these developments are now on the back burner.

“What we’re talking about now is how we can make it easier to serve customers and deploy our capital in ways that bring more value,” said Halil.

The digitisation of sales processes and the automation of internal processes, including the adoption of artificial intelligence, are boosting productivity levels. 

“Ultimately, I do think that will make us more streamlined and more efficient businesses, and I think it will provide better outcomes for customers as a result,” said Halil.

But finding the resources to make these investments is a challenge, as investors shy away from the uncertainty of the UK’s regulatory landscape. The FCA’s decision to rewind commission disclosure redress to contracts written in 2007 has sent shivers through the investment community, said consultant Andrew Brameld, and has left lenders focused on their bottom lines.

Moreover, valuing companies that want to exit the market has become virtually impossible, due to fears that another redress predicament is lurking on the horizon.

“That’s a real concern for the industry in attracting new investment,” said Brameld.

These market conditions point to a significant rise in merger and acquisition activity, “but you’ll see some really heavy discounting on pricing for the sale of a finance company, because buyers really don’t know what they’re taking on at the moment,” said David Betteley, head of Finance Connect’s Auto Finance Community.

Some lenders are finding a way to separate their ‘business as usual’ operations from the regulatory hurdles they face, albeit with less resources than they would like to have to innovate, said Ian Plummer, chief customer officer of Autotrader.

Failure to adapt and advance, he warned, leaves lenders as exposed and vulnerable as Kodak and Nokia once found themselves in markets that advanced rapidly.

“If you don’t change when times are good, you’re going to have to do it when times are hard, because change is coming at you, and competitors are coming at you,” said Plummer.

With the benefit of hindsight, the ideal time for innovation were the two years of supply shortages in the wake of the pandemic, when new and used car prices and profits soared. But OEMs confused a market effect for a brand effect, said Plummer.

This helps to explain why much discussed plans for captive finance houses to retain electric vehicles through multiple cycles with different customers never materialised. The opportunity was there to fund cars for a decade, but strong demand in the used car market saw manufacturers and lenders cash in and take the profits from skyrocketing residual values, rather than build a business model that served the first, second and third owners of an EV.

The threat to long-established lenders is that new entrants are appearing with a refined cost base and cutting-edge technology, unburdened by the complexity of updating legacy IT systems.

Consumer surveys show car-buying confidence remains stable, and retail sales were up year-on-year in both April and May at percentages well ahead of GDP growth.

The conflict in the Middle East did trigger inflation, but the impact on interest rates has been very modest, and the auto finance sector appears to have avoided any pressures on liquidity.

Furthermore, the spike in pump prices appears to have prompted sustained interest in battery electric cars, which accounted for 29% of searches on Autotrader in April and May, exceeding petrol for the first time. Three to five year old BEVs are now the fastest selling category on the platform, and after a turbulent couple of years residual values have stabilised as demand outstrips supply.

But this newfound stability is fragile, due to the pricing pressures leveraged by new entrant manufacturers. While their lower list prices and heavy discounts alleviate some of the depreciation concerns among lenders, facilitating attractive monthly payments, there’s still an absence of data about how these high-tech, richly specified new cars will perform in the used car market as three or four years old models.

“At the moment we’re finding the sheer number of new brands that are coming to the UK quite daunting, and there are serious questions around which are the best, which will endure, and how customers will be supported and serviced in the years to come,” said Halil.

In the meantime, the aggressive pricing of these new players threatens to undermine used prices in the wider market.

“They’re coming in at a much lower price point than cars from the established OEMs that we’re still selling in higher volumes, and that’s going to have a downward pressure on residual values,” said Halil.

This article is based on a discussion from the Auto Finance Plenary session at the Finance Connect Summer Conference 2026, where industry leaders explored the key challenges shaping the automotive finance market, from regulatory uncertainty and EV residual values to investment, innovation and competitive pressures. The session was moderated by Kana Inagaki, automotive correspondent for the Financial Times.