Motor Finance Market Under Pressure – But What Lies Beneath the Headlines?

Motor Finance Market Under Pressure – But What Lies Beneath the Headlines? 

The latest news from Close Brothers, as reported in The Guardian, has sent fresh ripples through the motor finance sector. A £114 million impairment charge, a sharp share price drop, and plans to exit part of its car finance business signal deeper concerns in what was once seen as a lucrative and stable segment of financial services. 

But is this just a Close Brothers story? Or a broader indication of where the motor finance market is heading? 

Plimsoll’s latest analysis of the UK Motor Finance sector suggests the issues run deeper than one institution’s balance sheet. The data points to a market undergoing significant transition, with increasing financial strain for many operators and clear signs of consolidation ahead. 

A Sector at a Crossroads 

Close Brothers’ retreat highlights a wider recalibration in the market. Rising defaults, tightening affordability, and closer regulatory scrutiny are reshaping risk appetite. Lenders that once grew rapidly in a buoyant used-car market are now reassessing exposure and cost structures. 

According to Plimsoll’s latest figures: 

• 1 in 3 companies in the motor finance market are now rated as financially at risk, a worrying sign for the overall health of the sector. 

• Profit margins have narrowed significantly, with the average pre-tax profit margin now sitting at just 6.2%, down from previous highs. 

• 21% of companies are operating at a loss, reflecting increased impairments, slower loan book growth, and rising operational costs. 

The knock-on effects are already being felt, and it’s clear that pressure is building not only on smaller independent lenders but also on larger, well-established players. 

Growth Slowdown Meets Rising Competition 

Plimsoll’s report also highlights how growth in the sector is slowing, with average sales growth falling to just 4.3%, compared to double-digit rates seen in the post-pandemic bounce-back. At the same time, competition remains intense - not only from traditional finance houses but also from new digital-first platforms, fintech lenders, and the captive finance arms of manufacturers. 

The result? Margin compression, pricing pressure, and greater difficulty maintaining healthy loan-to-value ratios in a market where vehicle prices are becoming more volatile. 

 
 
Consolidation is Already Underway 

As weaker players come under pressure, stronger firms with robust funding lines and digital infrastructure are gaining ground. Plimsoll’s data identifies over 60 acquisition targets in the market; companies that are financially vulnerable but could offer customer databases, loan books, or platform assets attractive to larger lenders looking to scale or diversify. 

This trend is particularly relevant in a sector that still holds long-term potential but is clearly moving into a new phase, one that prioritises efficiency, compliance, and risk control over rapid expansion. 

Strategic Lessons for Market Players 

The Close Brothers episode serves as a warning, but also a strategic turning point. The motor finance market isn’t disappearing, but it is evolving fast. Plimsoll’s analysis suggests that success now depends less on size and more on financial resilience, operational agility, and a clear grasp of regulatory direction. 

For lenders, investors, and even motor dealers with embedded finance arms, the message is clear: future growth will depend on smart positioning and data-led decision making. 

Conclusion: Risk is Rising…But So Are Strategic Opportunities 

The Close Brothers news will no doubt raise questions across the industry. But with the right insight and timing, there are still gains to be made. As Plimsoll’s data shows, the market is dividing between those who can adapt and those who may not survive the next wave of disruption. 
Understanding where the opportunities lie - and where the financial cracks are starting to show will be critical in the months ahead. 

Are you interested in learning more about the companies in your industry? Visit www.plimsoll.co.uk today.