The German automotive giant Volkswagen AG is poised to disclose a substantial loss stemming from a £9 billion motor finance compensation scheme introduced by the UK financial regulator, months after the company joined several rival automakers in launching legal action against the plan's implementation.
Volkswagen Financial Services has submitted financial statements to Companies House, and these are expected to show provisions running into hundreds of millions of pounds to compensate car buyers who were mis-sold financial products over many years.
The filings, due to be made public later this week, will for the first time reveal the scale of the losses facing Volkswagen, which owns the Audi, SEAT and Skoda brands, in this scandal.
Analysts said on Tuesday that, based on the provisions set aside by competitors such as BMW AG and Mercedes-Benz Group AG, Volkswagen will need to reserve at least £500 million in its 2025 financial year to cover compensation claims.
Earlier estimates suggested the German carmaker's total compensation bill could reach around £1.5 billion. Should that estimate prove accurate, Volkswagen would become one of the hardest-hit companies in this motor finance scandal.
A spokesperson for Volkswagen Financial Services (UK) said: "Volkswagen Financial Services has adopted a prudent and responsible approach to provisioning. We are following the statutory process and awaiting the publication of our annual financial statements at Companies House, at which point our financial position will be disclosed fully and objectively. We will not comment on the figures before the annual report and financial statements are formally published."
In legal filings submitted earlier this year, Volkswagen Financial Services said the Financial Conduct Authority's scheme would have a "material financial impact" on the business. The documents stated: "Volkswagen Financial Services is the largest carmaker-affiliated credit provider in the UK motor finance market."
Passages in the filings disclosing the number of customers and the total value of lending during the compensation coverage period were redacted, concealing the relevant data.
However, the company's 2024 financial statements showed total lending of close to £6 billion for that year, down from £6.3 billion in 2023. Volkswagen Financial Services disclosed an operating profit of £178.7 million in 2024, a sharp decline from the profit level of just over £310 million in 2023.
Parts of the FCA compensation scheme have been suspended pending appeal rulings, after several motor finance firms lodged appeals. Court hearings are expected to take place in December or February of next year.
The prospect of mass legal action had earlier receded after the Finance & Leasing Association (FLA) reversed its position at the last minute and abandoned plans to sue the regulator. FLA members issued a combined £55 billion in car loans last year.
Several leading motor finance providers, including Barclays PLC, Lloyds Banking Group PLC, Santander UK and Close Brothers Group PLC, ultimately decided not to pursue legal action despite having already set aside hundreds of millions of pounds in compensation provisions.
The consumer group Consumer Voice has also sued the FCA, arguing that the compensation scheme would harm the interests of affected car owners and that the payouts are insufficient.
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