July 26, 2017 / 11:16 PM / a year ago

UK car industry says clarity needed now as Brexit weighs

LONDON (Reuters) - Britain’s car-makers and traders are starting to feel the strains of Brexit, and output this year is likely fall short of the industry’s expectations, the head of the leading UK group in the sector said.

FILE PHOTO - Cars are displayed outside a showroom in west London October 4, 2013. REUTERS/Luke MacGregor

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said the government needed to say now what its plans were for the sector when Britain left the European Union in 2019.

The number of cars made in Britain in June slumped by almost 14 percent year on year to 136,901, the SMMT said on Thursday.

That left first half output in a sector that supports more than 800,000 jobs down nearly 3 percent at 866,656 units.

Although that represented the second-highest January-June performance in 12 years and a pick-up was likely later in the year, output in 2017 would probably be closer to 1.8 million units than a previous forecast of 1.9 million, Hawes said.

Britain’s car industry has boomed in recent years with global manufacturers investing heavily in the country as a base for selling to the rest of the EU and beyond. More than half of the cars exported from Britain go to the EU.

But last year’s decision by voters to leave the bloc has left the industry exposed. The bloc has tariffs of 10 percent on car imports, posing a risk if Britain leaves in under two years’ time with no new trade deal in place.

The impact of the referendum on the country’s consumers is another problem for car-makers. Households have been pinched by a sharp rise in inflation, caused in large part by the fall in the value of the pound since the Brexit vote.

Cars made for the domestic market were down nearly 10 percent in the first six months of 2017 while exports - which account for nearly 80 percent of output - were roughly stable, SMMT figures showed.

“Undoubtedly, the situation has changed,” Hawes said.

The SMMT’s long-held target of increasing production to just under 2 million units in 2020 was also in doubt, with changing assumptions about individual company decisions on their models also a factor.

Britain could miss the target by 10 percent if it fails to secure an interim deal with the EU, Hawes said.

The SMMT, like other British industry groups, wants the country to stay in the EU’s single market and customs union as it transitions to a future trading relationship with the EU, something the government is ruling out.

“The government has been in listening mode but now it must put on the table the concrete plans that will assure the future competitiveness of the sector,” Hawes said.

A fall in investment this year was another sign of Brexit concerns, even if some of the drop had been expected after strong levels in recent years, he said.

The industry also faces the challenge of shifting away from petrol- and diesel-fuelled cars. On Wednesday, the government said it would ban such vehicles from 2040 to promote electric cars.

Writing by William Schomberg; editing by John Stonestreet

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