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Could Brexit put the brakes on Britain's car industry?

© AFP/File / by Patrice NOVOTNY | Over 1.7 million cars were produced in Britain last year, an increase of 8.5 percent on 2015 and the highest output since 1999

LONDON (AFP) - 

Britain's car industry reached its highest production level of the 21st century last year, but with Brexit talks imminent manufacturers are facing uncertain times ahead of the country's EU exit.

More than 1.7 million cars were produced in Britain last year, an increase of 8.5 percent on 2015 and the highest output since 1999, the Society of Motor Manufacturers and Traders (SMMT) announced on Thursday.

The figures show the industry has been in "good shape", according to Mike Hawes, SMMT chief executive.

"2016 was a tremendously successful year for the UK automotive car industry.

"In terms of new car sales, that was an all time record, with 2.6 million vehicles," Hawes told AFP, referring to a figure which included cars imported to Britain and then sold.

The vast majority of cars made in the UK -- eight out of 10 -- are exported, with European Union countries accounting for 56 percent of exports from Britain.

Germany, Italy and France are the biggest buyers, between them accounting for 47.2 percent of cars bought within the bloc.

Car production has driven through economic downturns in the UK and taken off in recent years, with this decade set to be the best the sector has seen since the 1970s.

British brands have been snapped up by foreign buyers, among them Mini and Rolls-Royce which are owned by Germany's BMW.

There has been a wave of investment in the country from foreign carmakers, notably Japanese firms Nissan, Toyota and Honda, which between them produce half the cars made in Britain.

- Brexit uncertainty -

After receiving private guarantees from the British government, Nissan CEO Carlos Ghosn in October gave the green light to new investments at its plant in Sunderland, northeast England.

Toyota said it would fight to continue operating its British factory after the country leaves the EU.

But globally, investment in the sector, which reached £2.5 billion ($3.1 billion, 2.9 billion euros) annually in recent years, fell to just under £1.7 billion last year.

Hawes said the change could be partially down to a wait-and-see attitude in the face of greater uncertainty in 2017.

"We don't know what our future trade relationship will be with Europe and ultimately with other export markets. We also see a potential increase in inflation and pricing which could affect the market," he said.

Last week Prime Minister Theresa May confirmed Brexit would see Britain leave the European single market, creating a stumbling block for the car industry which relies on trading vehicles and loose parts without paying duties.

Thomas Sampson, a professor at the London School of Economics, said British carmakers could suffer further disruption beyond tariffs.

"Inside the customs union cross-border supply networks can flourish, but if trade in car parts faces tariffs, rules-of-origin restrictions and other border barriers, then producers will need to reorganise their supply chain, potentially causing substantial disruption to trade in the car industry," he told AFP.

With an industry which employs 800,000 people, directly or otherwise, carmakers are keeping a close eye on divorce proceedings between London and Brussels.

If Britain fails to reach an agreement and leaves the EU without a deal, the sector risks falling back on World Trade Organisation rules which would see tariffs jump from zero to 10 percent.

Beyond continental Europe, British carmakers could look to their second top buyer -- the United States -- which accounts for less than 15 percent of car imports from the UK.

But with the protectionist promises of President Donald Trump, coupled with far fewer British car buyers in other countries, UK carmakers are a long way from replacing their bumper European market.

by Patrice NOVOTNY

© 2017 AFP