Close Brothers Motor Finance has urged UK dealers whose profitability depends upon sales bonus payments from manufacturers to review their business strategies and explore other options for sustaining their margins.
The call came amid growing speculation that the UK’s new car sales market is fast-approaching saturation point, coinciding with a resurgence in the used car market, the lender said.
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James Broadhead, chief executive officer at Close Brothers Motor Finance, said: "Low consumer funding costs have fuelled dealer profitability in recent years but many have also seen their financial performance boosted significantly by additional manufacturer incentives.
"The pace of post-recession recovery has buoyed the UK market, as has a strong pound, but this golden scenario just isn’t going to be sustainable as manufacturers see new growth opportunities in overseas markets and boosted supply in the used car market drives down prices.
"Scaling back incentives such as free insurance and bolt-on specifications makes commercial sense for manufacturers. Dealers who have already stepped back from focusing so heavily bonus payments, often at the cost of sacrificing short term sales, are better placed to deal with this new world."
Manufacturer bonuses are typically geared towards achieving quarterly sales targets. Close Brothers said that many dealers self-register new cars to hit these targets, while maximising profit from other areas of their businesses has become a secondary concern.
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By GlobalDataBroadhead said: "Forward planning is now the key for dealers, with a focus upon ensuring their used car offer is differentiated effectively from their competitors, and a renewed focus on listening and responding to consumers’ needs as new-registration purchases lose their allure."
