FLA forecasts 12% fall in value of used car finance sector in 2023

The Finance and Leasing Association has forecast a 6% decline in the value of the UK car finance sector in 2023 – with used car finance falling by 12%.

The new forecasts come as the FLA revealed that new consumer car finance business fell 3% by volume and 5% by value in January, leaving the sector up 5% by value and with “stable” levels of volume in the year to the end of the month.

Geraldine Kilkelly, director of research and chief economist at the FLA, said: “The consumer car finance market reported a modest fall in new business in January.

“In the first half of 2023, household expenditure is likely to remain relatively weak as pressures on household incomes from high inflation, and higher interest rates and taxes continue, but we should see a further easing of supply shortages in the new car market as the year progresses.

“FLA’s latest research suggests that the value of consumer car finance new business is likely to contract by 6% in 2023 to £38 billion.

“The value of new business provided to consumers for new car purchases is expected to grow by 4% in 2023 to £18bn, while consumer used car finance new business by value is forecast to fall by 12% in 2023 to £21bn.”

The FLA’s prediction of an easing of new car supplies comes just days after Society of Motor Manufacturers and Traders (SMMT) data showed the UK’s new car market had experienced a 26.2% year-on-year rise in registrations to register a seventh consecutive month of growth during February.

That came on the back of 14.7% growth in January.

While margins remain strong, the UK’s used car sector experienced an 8.5% decline in sales last year, however, as a result of the automotive sector’s new car supply “squeeze”.

The FLA’s January data showed that consumer new car finance delivered a 6% decline in new business by value and 10% by volume compared with the same month in 2022. 

In the twelve months to January 2023, new business volumes in this market also decreased by 10% compared with the same period in 2022.

The consumer used car finance market reported new business volumes in January at a similar level to the same month in 2022, while the value of new business fell by 4%, it said.

In the twelve months to January 2023, new business volumes in this market grew by 4% compared with the same period in 2022.