'Explosive' growth in Motability helps car makers in a tricky year

As car makers navigate a sluggish new car market, one enthusiastic bulk buyer is proving very helpful indeed. “The Motability market has just exploded,” Guy Pigounakis, commercial director at MG Motor UK, told Autocar. “None of us have seen anything like it for decades.” Motability is a charity that provides cars for disabled people. It has become a major player in the UK car market since its 1977 foundation, but this year it has taken on a whole new level of importance. In the first quarter of 2024, Motability received a record 112,734 applications from people looking to put the £75.75-per-week mobility portion of their Personal Independence Payment or Disability Living Allowance into a new car. In the six months from the start of October, Motability has received a massive 48% increase in applications to almost 200,000. That means for the calendar year of 2024, the charity is on track to buy more than 400,000 new cars, which would mean it would account for a little more than a fifth of the 1.98 million cars that trade body the SMMT expects the UK market to reach this year. As of the end of March, Motability – which buys the cars itself – owned 763,500 vehicles, worth around £10 billion. “Applications and renewals soared,” wrote Andrew Miller, CEO of Motability Operations, in the charity's most recent financial report for the six months ending 31 March. There are a few reasons for this explosion. The first is that car makers are targeting Motability again as supply returns following a period when parts shortages made production very difficult. Faced with high prices to change, many Motability customers simply extended their current lease. Motability estimates that 57% of the applications during the record half-year are coming from those customers who extended their normal three-year lease. The other 43%, however, are new: a record 86,300 customers joined the scheme in the six months to the end of March. That might be because the number of people entitled to receive a disability benefit in Britain has risen, from 3.9 million in May 2002 to 6.3m in February 2023, according to government figures. They don’t have to use their benefit money to buy a car, but prices have proved very tempting this year. Motability customers can upgrade their car by paying an advance payment up front, but this quarter, 115 cars out of 857 were available with no advance payment, including a range of electric cars. Versions of the Renault Mégane E-Tech Electric, Jeep Avenger Electric, MG 4 EV, Cupra Born, Fiat 500e, MG ZS EV and Skoda Enyaq are all available with nothing down. Motability calculates that its customers can get into a car at 48% cheaper than going to a dealer. To achieve these prices, Motability reinvests any profit it makes on leasing and then reselling the cars. That has been substantial in previous quarters, when residuals shot up, although not in the last half year, when used prices slid downward again. And this year, the charity is also getting help from the manufacturers themselves. “It costs us a lot to be competitive [on Motability]. Everyone is cutting each other throats, wanting a share of that 400,000 market,” said Pigounakis. “But it's not as expensive as rental and a lot less distressful.” By 'distressful' he means that discounting through Motability harms residual values much less, because the cars come back three years later, instead of after just six months with daily rental deals. Although they make fewer private transactions than Motability sales, dealers prefer the former more because there's an opportunity to sell add-ons. In areas with higher numbers of people receiving disability benefits, for example south Wales, central eastern Scotland and north-west England, “60-70% of a dealer's business is Motability”, according to Pigounakis. MG has recently changed its policy to include Motability sales in dealer volume-related bonuses. “It has gone down extremely well,” Pigounakis said. Motability’s boom is also good news for car makers struggling to hit the EV sales targets of the UK's new ZEV mandate. Motability has been extremely proactive in promoting EVs, for example giving out free home chargers to EV customers. By the end of March this year, the charity had installed 46,679 chargers as part of a £300m spend on boosting EV sales. The charity noted that EV applications had increased by more than 300% in the six months to the end of March over the same period in 2023. It currently has around 50,000 EVs on its customer fleet. However, this presents the charity a problem as those cars come off the fleet and are sold into the used market. “The differential between electric residuals and ICE residuals are quite significant,” Miller told the Financial Times Future of the Car conference earlier in May. He predicted the gap will widen as fewer ICE cars are sold. Motability is so worried about future residuals across its fleet that it booked a £232m impairment charge in the half-year to the end of March. That took it to a post-tax loss of £183m for the six months, despite a healthy boost in revenue by 27% to £3.3 billion. Not all that was related to EVs, and Motability will take another look at residuals later this year to monitor whether they’ve stabilised, but the shift to electric does weigh heavy on the charity. Miller took issue with the government’s ambitious growth targets for EVs without a clear charging strategy, saying: “Our customers have an average household income of £20,000 and most don't live in a house, so the government policy is unintentionally aggressive." Motability is working hard to figure out how to make EVs more compatible with the lives of its customers. As well as installing free chargers for those with driveways, from March all EV customers have been given a free app and card to tap into the Motability Go-Charge network, which links 20 charging providers including Gridserve, Source London, Chargeplace Scotland, Geniepoint and Osprey, covering 45,000 chargers, and fixes competitive tariffs. Miller wants to go further. “One of the things that intrigues me is how we get electricity into the lease to get the total cost of ownership down,” he said. “Because if you've got a household income of £20,000 and you’ve got an electric car, you can charge at night for almost free and get £300 back in a year easily. And that's before vehicle-to-grid, which would be worth £2000 a year.” EVs also present challenges for wheelchair converters. Mobability spends around £140m to alter vehicles to be wheelchair-accessible, comprising around 40,000 of its fleet. That’s done by dropping the car's floor, but the battery location in EVs makes that much harder. To investigate how to get round that and generally make vehicle travel more comfortable for wheelchair users, Motability commissioned British design agency Callum to come up with a solution. That project is called eVITA, the prototype for which was unveiled earlier this year. We hear the phrase 'freedom of mobility' a lot in the wider context of new car sales, but Motability provides exactly that to those for whom a car is a lifeline. This year, that lifeline has been extended to the car industry itself, providing a useful outlet for new vehicles amid sluggish sales.