Brexit Jitters Hamstring U.K. Auto Industry

Investment in Britain’s car industry plunged more than 70% to £90 million ($109.5 million) in the first half of the year as global manufacturers held back their spending over the Brexit crisis.

The rate of first-half spending was well behind the annual average of £2.7 billion ($3.3 billion) over the previous seven years.

Society of Motor Manufacturers and Traders CEO Mike Hawes says the spending freeze is the result of global instability compounded by ongoing fear of a no-deal departure from the European Union.

“This fear is causing investment to stall, as hundreds of millions of pounds are diverted to Brexit cliff-edge mitigation – money that would be better spent tackling technological and environmental challenges,” Hawes says in a statement.

“The vast majority of manufacturers have suspended plant and product spending in the U.K. amid ongoing uncertainty.”

SMMT research shows the substantial cost to industry of the no-deal-Brexit preparations.

At least £330 million ($401.5 million) has been spent by the sector on contingency plans.

SMMT says most major U.K. manufacturers have tied up working capital stockpiling materials and components, securing warehousing capacity and investing in new logistics solutions, additional insurance and training in new customs procedures.

“Significantly, many manufacturers have moved annual plant shutdowns from the summer to April, a measure which cannot be repeated for the proposed October departure date,” Hawes says.

SMMT reports British car manufacturing first-half output fell 20.1% to 666,521 units. The 15.2% drop in June to 109,226 units marked the 13th consecutive month of decline.

SMMT says the number of cars built for export fell 19.8% to 90,788 units in June and  21.0% to 533,318 for the first half.

Exports to the sector’s top global markets fell by double digits, with the U.S. down 12.9%, China down 53.1%, Japan down 10.5% and Turkey off 93.0%. Demand in the U.K.’s biggest market, the EU, fell 15.6%.

SMMT says a no-deal Brexit would mean the immediate imposition of tariffs costing some £4.5 billion ($5.5 billion) a year and an end to the seamless movement of goods.

“Any potential disruption at the border would throw just-in-time manufacturing into chaos, undermining the sector’s competitiveness and putting profitability and jobs at risk,” the trade group says.