Last week, the Supreme Court ruled on a historic case relating to the practice of dealers not disclosing commissions earned from the sale of finance products (hire purchase and PCP) that make up 90% of new car deals.
In overturning the Court of Appeal's initial judgement, the ruling means that lenders are largely not liable for undisclosed commissions in standard cases. This has spared banks and lenders from potential redress costs, estimated to be as high as £44 billion, rivalling that of the PPI scandal. However, the Supreme Court did rule in favour of one claimant, Mr. Johnson, who discovered that a particularly large proportion (55%) of his finance payments were paid as a commission to the dealer. The Court ruled that this arrangement represented an "unfair" relationship. In view of this, the automotive sector is far from off the hook. Consumer awareness around dealer finance practices is already growing as a result of the ruling, and many will now question whether they're truly getting a fair deal.
Here, we explore the likely impacts across the automotive ecosystem – dealers, car manufacturers, finance arms, and consumers – and offer strategic considerations for the months ahead.
Consumers: Higher costs, shifting choices, more transparency
Consumers have been watching this saga closely, and one worry is that clamping down on commissions could have a knock-on effect on the cost and availability of car finance. The Treasury and industry analysts warned that if the Court of Appeal's ruling stood, access to car loans would be restricted and some lenders would even have been forced out of the market.
Despite this scenario being largely averted, compensation estimates range from £9-18 billion. Lenders may still pass on some of this cost – including the costs to administer a complex redress scheme – to borrowers, on top of already increasing finance costs. Higher borrowing costs will disproportionately affect lower-income and mid-market buyers (A-C segment), stemming from increased lender risk and reduced dealer subsidies. Many will likely defer purchases or shift toward used vehicles, leasing, or subscription models, which will have a direct impact on new car sales.
Customers are already turning to price comparison platforms and online direct-lending tools to evaluate finance offers independently of dealers, and some might argue that these behaviours would have provided improved equity between dealers and customers in the first place. Either way, the expectation for full transparency in lending rates, commission levels, and credit options will only grow and serve as a precedent for other sectors that are heavily reliant on finance products. Rebuilding trust will, therefore, be a gradual but essential task for the industry.
Dealers: Income and customer trust erosion
For car dealers, the ruling brings relief from a threatened broad net of legal liability, but it also raises the bar for compliance and transparency. Dealers now face significant administrative work in reviewing past sales, cooperating with lenders on identifying affected contracts, and handling customer inquiries or complaints.
Smaller dealers may struggle with the burden of new compliance requirements. Ensuring that every finance transaction is properly documented and any commission is disclosed in line with regulations will likely require additional training, system updates, and possibly external legal guidance. Industry experts stress that now is the time for dealers to go beyond minimal box-ticking – "aiming for best practices, rather than minimum levels of compliance". Those who had already started the practice of disclosing commission arrangements in anticipation of stricter requirements will have a head start, but the automotive dealer industry has a long way to go in rebuilding customer trust.
Dealers will also be looking for ways to offset a reduction in income from finance commission payments. This potentially reopens the doors for negotiation of vehicle commissions that car manufacturers pay dealers through a combination of fixed and variable pricing, volume, and service quality bonuses.
Car manufacturers (OEMs): Strategic realignment in an already disrupted sector
OEMs and their captive finance subsidiaries also have a lot at stake in the wake of this ruling.
Firstly, there's the question of sales volumes. Modern auto sales heavily depend on affordable finance – around two million people a year in the U.K. use motor finance to buy a car and an estimated 80%+ of new car sales are via dealer-brokered credit. Disruption in the availability or attractiveness of finance will directly hit vehicle sales. OEMs are wary that tighter commission rules could make dealers less incentivised to push finance or, if lenders scale back, it could mean fewer cars sold.
A potential reduction in finance volume could especially impact new car sales. In light of this, OEMs will likely respond proactively to sustain volumes. Many OEMs had already instructed their captive finance arms to adapt – for example, running national finance promotions with fixed low rates and clear terms, so dealers can continue selling finance without fear of non-compliance. By standardising rates and removing dealer discretion, OEMs ensure that attractive finance offers remain widely available, thereby protecting sales volume while also adhering to regulations. Essentially, OEMs may temporarily shoulder more of the cost of promotions to prevent a dip in demand.
The reputational risk means many OEMs will be keeping a close eye on dealer behaviour – ensuring that their franchised dealers follow the new rules so that financing stays widely accessible. Some OEMs may even consider providing extra support to smaller dealerships (financially or via training) so those dealers can handle compliance without losing sales momentum. OEMs need to protect their brand reputation by distancing themselves from any unethical practices and demonstrating commitment to treating customers fairly. This is especially important for manufacturer-owned finance companies (captive lenders), which are an extension of the brand experience.
Strategic outlook: A turning point for automotive retail
This ruling marks a pivotal moment in the U.K.'s transition to a more digital, compliant, and customer-centric automotive sales model. Some expected outcomes for the medium and longer term include:
- A more commercially-savvy consumer population driving an increase in online car sales supported by price comparison platforms able to provide "total cost" comparatives
- Dealers looking to car manufacturers to help fill the resulting void in finance income. Shrewd negotiation to strike the right balance of value and incentives will be key
- Increased partnership and JV activity amongst OEMs and independent dealers to help absorb the impact of reduced volumes
- OEMs will need to plan for a scenario of constrained demand in high volume, lower value segments and the potential implications for their supply base and overheads
- An increase in "non-ownership" models such as car-sharing, subscription services, rentals and fleet-as-a-service.
Conclusion
The U.K. Supreme Court's ruling on historic motor finance practices will trigger more than redress payments – it will accelerate reforms in how vehicles are sold and financed. Dealers, lenders, OEMs, and finance arms must pivot quickly to address regulatory risk, stabilise sales pipelines, and rebuild customer trust.
Careful customer communications, cost estimation preparations, and data readiness are the critical first steps that businesses can take to minimise operational disruption, while they continue to fully assess and plan for the impacts of the ruling. In the medium term, the most resilient players will be those who learn the lessons from this case and adapt, rather than see this as a compliance hurdle.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
