The UK motor trade is navigating one of its most complex operating environments in a generation. Rising costs, regulatory turbulence, an EV transition that is moving faster than consumer demand, and a £7.5 billion motor finance compensation scheme are all landing at once. Yet underneath the pressure, there are genuine reasons for confidence, and clear actions that will separate resilient dealers from those who struggle.
By Tor Stringfellow, Partner, UHY Williamson & Croft
The automotive market in numbers
Start with what the data actually says. The UK new car market reached two million registrations in 2025 for the first time this decade – a landmark that, given everything the sector has absorbed, is more significant than it might appear. The Society of Motor Manufacturers and Traders now forecasts UK new car registrations to reach approximately 2.093 million in 2026, an upgrade from earlier projections that reflects improving confidence in overall demand despite geopolitical risks.
The used car market is also finding its footing. The Covid-era shortfall in used vehicle supply is now subsiding, and the used car market is resuming greater pricing strength,with higher-value one to two-year-old cars becoming more readily available and dealer profit margins improving, closing on pre-Covid levels.
And for a revealing indicator of where the structural money in the sector is flowing, look at Auto Trader. The UK’s largest digital automotive marketplace has marked the opening of its new 130,000 sq ft headquarters in Manchester’s Circle Square with group revenue increasing 4% to £624.3 million, and group profit before tax increasing 3% to £388.8 million for the year to March 2026. That is not the financial profile of a platform operating in a distressed sector. Auto Trader’s performance is a proxy for broader transaction volume – more cars being bought and sold means more listings, more leads, more revenue. Their numbers tell you the market is moving, even if dealer margins are under pressure.
The pressures are real and compounding
The headline figures, however, obscure a more difficult picture at the dealership level.
National Insurance costs
The increase in employer National Insurance contributions from 13.8% to 15% in April 2025 has been one of the most immediate financial shocks for the sector. Analysis from Motor Trader suggests this change represents around £140 million in additional annual NIC costs for the UK’s top 200 dealer groups alone, rising to £200 million when compared against 2023 levels. For individual dealers running significant headcounts across multiple sites, this is not a rounding error – it’s a structural cost increase that flows directly to the bottom line.
The EV transition is more complicated than the mandate implies
Manufacturers subsidised EV sales by more than £5 billion in 2025, equivalent to approximately £11,000 per battery electric vehicle registered – a level the SMMT has described as clearly unsustainable.
The pressure behind those subsidies is the ZEV mandate. The mandate requires 33% of new car sales to be zero-emission in 2026, rising to 80% by 2030. Manufacturers that fail to meet their quotas face fines of £15,000 per non-compliant car sold outside their allowance. Yet year-to-date, battery electric vehicles account for just 23.1% of new car registrations – well below the 33% target – despite aggressive manufacturer incentives and government support measures including the Electric Car Grant.
The gap between mandate targets and consumer demand is creating a distortion that flows through the whole market. Manufacturers are pushing EVs hard to avoid compliance costs, but incentives for new EVs divert buyers away from used EVs, putting downward pressure on older electric models. As used EV supply grows through defleeting cycles, dealers face greater risk if stock sits too long or depreciates faster than expected. Some early-generation used EVs have lost more than 70% of their value since 2022 – a residual value collapse that creates real balance sheet risk for any dealer carrying aged EV stock.
Industry voices have grown increasingly direct about the problem. Eurig Druce, SVP and Group Managing Director at Stellantis UK, has said: “The ZEV mandate needs to be more aligned to where consumer demand is. Investment is so heavy in the market, then some of the vehicles sold will be loss-making. If you are in that scenario and you are forced to increase supply as the ZEV mandate does, then that calls investments into question.”
The SMMT has called for an urgent review of the mandate’s trajectory. Until that review delivers clarity, dealers are operating in a regulatory environment where the rules of engagement for the most important product category in the market remain genuinely uncertain.
The aftersales revenue cliff, and why it matters more than most dealers realise
Ask most dealer principals where their real profit comes from and the honest answer is rarely new car sales. For the majority of franchised dealerships, the service department is the engine room of the business – generating disproportionate profit relative to its revenue contribution, smoothing out the cyclicality of vehicle sales, and providing the recurring customer contact that drives loyalty and repeat purchase.
That engine room is facing a structural threat that the industry has been slow to confront directly.
A conventional internal combustion engine vehicle contains approximately 2,000 moving parts. A battery electric vehicle contains closer to 20. There is no engine oil to change, no timing belt to replace, no exhaust system, no clutch, no conventional transmission. The routine maintenance intervals that have sustained dealer workshop revenues for decades – and the upsell opportunities that accompany them – simply do not exist in the same way for an EV.
The numbers behind this are stark. Industry analysis consistently estimates that EVs generate in the region of 40% less aftersales revenue per vehicle over their lifetime compared to an equivalent petrol or diesel car. Multiply that across a dealership’s parc and the direction of travel becomes very clear. As the ZEV mandate accelerates the shift toward electric vehicles in the new car market – requiring 33% zero-emission sales in 2026, rising to 80% by 2030 – the pool of ICE vehicles cycling through service bays will shrink with each passing year. The attrition is gradual now, but it compounds.
EVs are not zero-maintenance. Battery health diagnostics, high-voltage system inspections, software updates, air conditioning servicing and brake fluid changes all remain relevant – and regenerative braking, while it reduces pad wear dramatically, does not eliminate it entirely. EV tyres wear faster than their ICE equivalents due to the additional weight of battery packs and the immediate torque delivery that characterises electric motors, meaning tyre replacement becomes a more frequent conversation. For dealers who position themselves as EV specialists, there is a genuine and growing technical servicing opportunity.
But capitalising on it requires urgent action – because the skills gap in the sector is already severe. According to the Institute of the Motor Industry, only around 20% of vehicle technicians in the UK are currently trained to work on electric vehicles, despite EVs making up a rapidly growing share of the vehicles on the road. If that gap is not closed, the projected shortfall of qualified EV technicians is expected to reach 35,000 by 2030. For individual dealers, that means a workshop full of vehicles they cannot legally or safely service – a commercial problem that compounds the revenue challenge rather than solving it.
The opportunity, then, is real but time-limited. Dealers who invest now in IMI-accredited EV technician training — covering the Level 2 and Level 3 qualifications required to work safely on high-voltage systems — will find themselves in a strong competitive position as the parc shifts. Those who wait will find both the training pipeline and the talent pool increasingly congested, and their workshop capability falling behind the vehicles their customers are driving.
The more uncomfortable truth, however, is that EV servicing, even done well, does not replace ICE servicing revenue pound for pound. The frequency of visits drops, the average ticket value drops, and the upsell occasions — the moments when a customer comes in for an oil change and leaves having also booked tyres, air filters and a brake inspection — become rarer. For dealers whose aftersales department is currently subsidising thin new car margins, that is a structural problem that arrives not as a sudden shock but as a slow, compounding erosion.
The dealers best placed to manage this transition are those who are thinking about it now, while their ICE parc is still large enough to sustain current workshop volumes. Waiting until the revenue decline is visible in the monthly accounts is waiting too long.
The motor finance redress scheme
This is the issue that most dealers have been watching with a mixture of anxiety and frustration since it first emerged. The FCA has confirmed an industry-wide redress scheme to compensate motor finance customers who were treated unfairly between 2007 and 2024, with the scheme putting £7.5 billion back in consumers’ pockets, with millions of claims expected to be settled in 2026 and the vast majority by the end of 2027.
The UK Supreme Court judgment of August 2025 found that in certain circumstances motor finance companies may have entered unfair relationships with consumers, meaning commission will be repayable – though it also found that car dealers did not have to prioritise consumers’ interests over their own. That latter point is important and has been underreported: dealers are not the direct payers of compensation under the scheme – lenders are. But the reputational shadow over motor finance, and the potential dampening effect on finance penetration rates at the point of sale, is a legitimate concern for dealers whose F&I income depends on consumer confidence in the finance process.
Compressed margins
UK dealership operations are generating approximately 2.5% EBIT margins – a structural challenge that predates the current wave of costs but is being made materially worse by NIC increases, EV discounting pressure, and rising compliance overhead. The average profit margin across the new car and light vehicle dealer sector is currently estimated at 7.1%, which sounds reasonable until you consider the working capital demands, stock funding costs, manufacturer investment requirements and headcount needed to sustain it.
The bright spots are genuine
Against all of that, there are reasons for measured optimism, and dealers who focus only on the headwinds risk missing the opportunities that the current environment is also creating.
Used car profitability is recovering
As surplus and non-core stock has largely been absorbed, the remaining stock represents high-quality operational inventory with stronger pricing power. Improved technology – including dynamic pricing based on enhanced data feeds – is helping dealers protect margins through faster and more accurate stock management. For dealers with disciplined buying processes and tight stock turn targets, the used car market in 2026 is demonstrably better than it was twelve months ago.
Chinese brands are an opportunity, not just a threat
Chinese brands now account for around 10–13% of UK new car registrations, with analysts expecting their market share to grow substantially, a shift that will reshape the retail landscape. For dealers who move early to represent these brands, or to service their growing parc of used vehicles, the market share being captured is a commercial opportunity rather than purely a competitive threat.
Employee Ownership Trusts offer a credible succession path
For dealer principals thinking about their next chapter, the Employee Ownership Trust model has moved from niche to mainstream. At the start of 2025, UHY client Cars2 – a £220 million turnover group operating across 20 sites – completed a transition to employee ownership. As CEO Allan Otley told us: “We expected a morale boost, but the level of engagement has been fantastic. People genuinely feel like they own their work, and you can see the difference in the customer experience as a result.”
The EOT model offers 50% capital gains tax relief for qualifying sellers, tax-free bonuses for staff of up to £3,600, and preserves the brand, culture and manufacturer relationships that a trade sale can disrupt. For profitable, people-focused dealerships with strong leadership teams, it is worth a serious conversation. Our Automotive Outlook 2026 covers EOTs in detail, including a full case study of the Cars2 transaction.
Digital investment is rewarding those who commit to it
Auto Trader’s AI-powered CoDriver product has seen strong engagement, with over 10,000 retailers now using the tools – a signal that the dealers investing in digital infrastructure are gaining a measurable edge in lead generation and conversion. The platform’s move to its new Manchester headquarters, and its continued revenue and profit growth, reflects confidence in the long-term trajectory of digitally-mediated automotive retail. Dealers who are deeply integrated with digital tools, from dynamic pricing to online deal completion, are consistently outperforming those relying on traditional forecourt-only conversion models.
Our verdict on the health of the sector
UK automotive retail in 2026 is not in crisis, but it is under genuine structural strain, and the dealers who will thrive are those who treat the current environment as a forcing function for better management rather than a reason for pessimism.
The sector’s fundamentals remain sound. People still need vehicles, the used car market is recovering, and total registrations are growing. The threats – NIC costs, EV margin pressure, the long-term aftersales revenue erosion, the motor finance overhang, the ZEV mandate gap – are real but manageable with the right approach.
The dealers who will struggle are those who respond to margin pressure by deferring decisions: deferring the investment in technician training, in digital tools, in stock discipline, in succession planning. The dealers who will prosper are those who make those decisions now, while their competitors are distracted.
What dealers should do now…a practical checklist
On costs
Rebuild your annual budget from a clean slate rather than applying last year’s figures with an inflationary uplift. Every overhead line – staffing, energy, compliance, marketing – should justify itself. The NIC increase is not recoverable through revenue alone; it has to be met partly through cost discipline.
On EV stock
Maintain a balanced mix of ICE, hybrid and EV stock to manage portfolio risk and protect dealer profit margins. Adopt more conservative pricing strategies, assume slimmer margins and set tighter stock turn targets for EV inventory specifically. Do not let used EVs age – the depreciation curve is brutal and accelerating.
On the ZEV mandate
Understand your manufacturer’s compliance position and build your commercial relationships accordingly. Manufacturers under compliance pressure will be incentivising EV registrations – those incentives can work in your favour if you are well-positioned to absorb volume. But do not carry excess EV stock speculatively; the risk is asymmetric.
On aftersales – plan for the servicing revenue transition now
Map your current workshop revenue by vehicle type and model year. Understand what proportion of your aftersales income is dependent on ICE-specific work – oil changes, exhaust repairs, transmission servicing – and model what that looks like as your local parc gradually shifts. Invest in EV-specific technician training and Institute of the Motor Industry accreditation now, while the cost of doing so is manageable and the competitive advantage is still available. Consider whether your service marketing is evolving to reflect EV ownership needs — tyre management, battery health checks, software updates — or whether it is still built around messaging that will become increasingly irrelevant to a growing proportion of your customer base. The aftersales cliff does not arrive all at once, but dealers who have not prepared for it will feel it sharply by the late 2020s.
On motor finance
Review your F&I processes and ensure your team can articulate clearly to customers how commission arrangements work. Consumer confidence in motor finance has been damaged by the redress saga, and rebuilding it at the point of sale requires transparency and a straightforward conversation – not avoidance of the topic.
On succession
If you are in your fifties or sixties and have not yet had a serious conversation about your exit options, have one now. The EOT route, a trade sale, a management buyout — all of these take longer to execute well than most owners expect, and the tax and structural landscape is changing. Starting the conversation early gives you choices; starting it late gives you pressure.
On digital
Audit your current use of Auto Trader’s retailer tools, your website’s lead conversion rate, and the quality of your customer data. The gap between the best-performing digital dealerships and the average is widening, and it is largely driven by how systematically the better operators are using the tools already available to them.
Talk to UHY Williamson Croft
The issues covered in this article – aftersales strategy, EV stock management, NIC cost planning, succession, EOTs, VAT and tax compliance – are areas where UHY Williamson & Croft’s team works with motor dealers across the North West every day. If any of this has prompted questions about your own business, we would be happy to have a confidential conversation.
Call Tor Stringfellow on 0161 399 0121, email t.stringfellow@uhy-uk.com, or complete the contact form.
For a comprehensive overview of the challenges and opportunities facing UK dealers in 2026 – including detailed guidance on Employee Ownership Trusts, climate reporting, fraud prevention, EV VAT treatment, and BiK and ECOS reforms – download our full Automotive Outlook 2026 below. It is practical advice written specifically for motor dealers.