Sheffield-based Motorway Direct is to take over the running of the RAC's warranty business in a strategic alliance designed to challenge the £1bn a year mechanical breakdown insurance market.

Motorway Direct will market RAC Business Services' range of warranties, and process claims using its claims handling software.

RAC Business Service's managing director Gary Spellins said: “The two teams will work closely together to raise the profile of the warranty market and move it away from its current obsession with low-cost policies providing minimal cover.”

Motorway Direct's managing director, Donald Pinkney said: “The RAC warranty brand has an outstanding commercial reputation and Motorway Direct will enhance this.”

The alliance's major customers include Ford and Mercedes Benz and some of the UK's largest independent motor dealers.

RAC Business Services' warranty business will be transferred from Feltham to Sheffield. It is not known whether there will be job losses.