IM Group, which distributes Subarus, Daihatsus and the Isuzu Trooper in the UK, has made a strategic shift in its business by investing £25m in a new motor finance company.

Former Capital Bank executives have launched the Funding Corporation with a total investment of £115m of which Barclays is providing £90m.

The Funding Corporation believes it can make loans totalling more than £1bn in its first five years. Insurance products will be added to finance when the Funding Corporation launches in the autumn.

It will provide point-of-sale hire purchase finance for customers in all grades of risk buying cars, motorcycles and caravans.

Bob Edmiston, IM Group chairman, said: “This will not affect in any way our current working and contractual arrangements with dealers or with our existing joint venture partner, Capital Bank Motor.

“This is a particularly exciting venture with tremendous potential. We've seen some enormous changes within the motor and finance markets and I have no doubt there will be more to come.

“Our involvement represents a major strategic investment which helps us to sustain our growth.”

The Funding Corporation, based in Chester, will target the used vehicle operations of franchised dealers and also used car specialists.

A spokesman said: “We will mount a direct challenge to the increasing domination of the motor finance marketplace by large providers.”

Funding Corporation managing director Jim Rowley is former general manager of Bank of Scotland subsidiary Capital Bank Motor. He was previously managing director of Forthright Finance, Capital Bank Motor's independent dealer finance division.

Mr Rowley said: “The increasing size and dwindling numbers of motor finance providers has restricted dealer choice and some of the biggest players are looking to consolidate further.

“We'll set standards based on what dealers want, not the service levels other providers believe dealers should have.”