Auto suppliers with plants in the United Kingdom are likely to delay capital investments until the country hammers out a new trade deal with the European Union in the wake of last week's Brexit vote.
And since that new uncertainty could take years to resolve, it could lead to a de facto freeze on production capacity -- both for the parts makers and the customers they serve.
The fundamental new question for suppliers? Will U.K.-based manufacturers be assessed a tariff on parts and vehicles shipped to Europe? And will the U.K. reciprocate with tariffs on European components coming into British auto plants?
"It all depends on how well the politicians conduct these negotiations," said Ian Fletcher, a London-based analyst for IHS Automotive, referring to future U.K.-Europe trade negotiations.
German mega-supplier Continental AG faces short- and long-term questions, with plants in 16 U.K. locations producing tires, interior trim, and engine and chassis parts. On Friday, June 24, CEO Elmar Degenhart warned of the potential for bigger disruptions -- that the vote eventually might cause the EU to break apart, which would be catastrophic.
"We cannot allow this to happen," Degenhart said in a written statement. "It would be a disaster if discontent with the political and economic situation were to lead to the breakup of the European Union."
Last week's vote may have created one silver lining for parts manufacturers. The downward plunge of the British pound sterling -- which overnight fell to a 30-year low against the dollar -- means U.K.-produced exports will be more competitive.
Italian tire maker Pirelli noted this Friday.
"Regarding exports, higher raw material costs should be offset by sterling devaluation and control of operating costs," Pirelli said in a written statement published by Tyrepress.
But even a devalued British pound may be outweighed by a weakened European economy, Fletcher warned. "The UK's decision to leave the European Union undoubtedly will dampen European growth, which will hamper UK exports despite a weaker pound," he noted in his written report.
"The automakers and suppliers will keep their cards close to their chests at the moment," Fletcher said. "They were all banking on the status quo, and that hasn't taken place."