Auto finance lenders and OEMs face double threat

Legal challenges to redress scheme and a review of the ZEV Mandate put industry on hold for six months

There is a strong sense this month of the automotive and auto finance industries being caught in the eye of the storm – that brief zone of calm before the turbulence resumes.

Finance companies caught up in the discretionary commission crisis face a temporary reprieve from the Financial Conduct Authority’s redress scheme, while manufacturers await the outcome of an accelerated review of the Zero Emission Vehicle Mandate – a process which will also have profound implications for lenders and brokers.

Legal challenges from three captive lenders (Mercedes-Benz FS, Volkswagen FS, Credit Agricole Auto Finance), as well as consumer action group, Consumer Voice, have forced the FCA to suspend its motor finance redress scheme. Resumption is not expected until the end of the year at the earliest, when the Upper Tribunal will hear the challenges. The FCA said firms should keep preparing and progress complaints as far as possible, “while avoiding work that may need to be repeated if the challenges succeed.”

The regulator has also issued a robust legal defence against the three lenders, arguing that their case to make their own decisions about whether or not their conduct had caused loss or damage to consumers, would be tantamount to agreeing to “let the foxes guard the henhouse.”

Watching from the wings are thousands of misselling claimants, who can now group together into ‘omnibus’ actions, following a verdict by the Court of Appeal.

The end of the year will also see the Government publish a fast-tracked review of the ZEV mandate, originally due in 2027, but brought forward following pressure from OEMs. The Department for Transport has ruled out any changes to the 2030 ban on the sale of new petrol and diesel cars, and 2035 phase-out for hybrid vehicles, but said the stretching trajectory of zero emission car and van sales would be reviewed.

Electric car and van sales are rising, but remain well below the levels needed to meet the mandate’s targets.

OEM efforts to meet the percentage of zero emission vehicles within their new vehicle sales demanded by the government have seen heavy discounting and widespread pre-registration, both of which risk undermining residual values.

Weakness in used vehicle prices led to the UK’s largest independent truck-to-car vehicle leasing and fleet management company, Zenith, reporting an impairment on vehicle assets of £38.8 million for the year ended 31 March 2026, as it reported 31.9% year-on-year rise in EBITDA to £67.1 million.

There is, however, encouraging news from the used battery electric vehicle market, which has been given a lift by the high pump prices for petrol and diesel since the war in the Middle East.

Used BEV prices have recorded their first annual increase since December 2022, with the strongest performance delivered by three to five-year-old cars, according to Autotrader.

But as the Government announced more details of the eVED mileage charge for BEVs, which will add £15 to £30 to monthly costs when it comes into force in 2028, the BVRLA and the Association of Fleet Professionals have warned that the new tax may adversely affect both new and used EV values, and could slow the UK’s transition to electric vehicles.