No calm in the storm facing auto lenders

Any hope among auto finance lenders that the new year would start with a clean slate and a bit of calm has failed to survive the first month of the year. Familiar themes of residual value risk for electric vehicles, uncertainty over new Chinese manufacturers, and the continued fallout from the commission disclosure mis-selling crisis have swiftly seized the headlines.

The BVRLA’s latest Leasing Outlook report reveals that the leasing association’s members now run a combined fleet tantalisingly close to 2 million vehicles, but their growth is at the expense of margins.

“The relentless pressure of compliance costs, cash-strapped customers and rampant EV depreciation,” has tempered the expansion success, with the Government’s announcement of a three pence per mile eVED charge for electric vehicles from 2028 further undermining confidence.

The Department for Transport appears to acknowledge that EVs need a boost, launching a new campaign to encourage drivers to switch to battery power. It says 50,000 drivers have already benefited from the Electric Car Grant (ECG).

EV adoption risks becoming a political issue, with the prospect that lower-income households will be left behind, unable to afford an EV. Almost two fifths of lower-income households buy cars priced £5,000 or less, yet just 1% of used EVs fall into that bracket today, according to Autotrader.

Even the 50,000 drivers that have taken advantage of the ECG represented just 2.5% of the UK’s new car market in 2025, which exceeded 2 million registrations for the first time since Covid-19. OEMs pushed EV sales hard in the last month of the year in a bid to hit their Zero Emission Vehicle Mandate targets, but across the year as a whole EV’s 23.4% of sales fell significantly short of the 28% mandate.

Chinese brands are accounting for a significant share of EV sales as they rapidly increase their UK presence.

BYD, Chery, Omoda and Jaecoo all grew their UK sales by between three- and five-digit percentages (albeit from low start points), as the combined UK registrations of all Chinese brands totalled more than 170,000 vehicles in 2025 – roughly one in 12 new cars sold.

New entrants have less of a toe hold in the light commercial vehicle market, where van sales were 10.3% down year-on-year. The van sector is further off course in its ZEV Mandate progress than the car market, with battery-powered vans accounting for just 9.5% of sales, well shy of 2025’s 16% target. Higher total cost of ownership, charging complexities, and long delays in connecting depots to the electricity grid are impeding adoption.

Meanwhile, the fallout from the Supreme Court’s ruling on commission disclosure continues to ripple through the industry as it awaits the details of the FCA’s redress scheme. The verdict may have shrunk the estimated £44 billion in potential claims closer to £8 billion, but that is still a huge figure for the industry to find. Mercedes-Benz Financial Services reported a £364.6 million loss for the year ended 31 December 2024, after increasing its provision for compensation payouts to £395 million, raising its total provision to £423.8m, the largest so far disclosed by an auto captive lender.