A no-deal Brexit could cost the UK automotive industry at least £3 billion in CO2-related fines, Autocar has learned.

The costs represent the fines that would be racked up by the 40-plus manufacturers operating in the UK and who would fall foul of the 95g/km fleet average CO2 figure, which the government has pledged to implement unilaterally if the UK goes-it-alone in October.

A spokesman for the Society of Motor Manufacturers and Traders (SMMT) said: “The European CO2 Directive allows manufacturers flexibility to balance their emissions performance across all relevant European markets. A no deal Brexit would, however, remove this flexibility, which may make reduction targets far harder for some manufacturers, given the UK model mix may differ from a European average.

“If this meant additional fines were to be levied on UK companies, the effects could be hugely damaging, reducing consumer choice, undermining competitiveness and restricting future R&D spend. This is yet more evidence of the severe consequences for the British automotive industry from a disorderly Brexit - no deal must be ruled out immediately.” Although the concept of the UK adopting the 95g/km CO2 average has been well-flagged – it was a key element in government No Deal Brexit planning documents – the impact on individual car-makers and the industry as a whole is only just starting to emerge.

The significant issue is that the UK fleet average figure would be based purely on UK sales, making it less likely for sales of heavier cars with larger engines, especially the growing mix of SUVs models, to be balanced out by cheaper, lower polluting city cars and superminis.

One mass-market manufacturer that Autocar spoke to has carried out an internal audit of its annual new car sales and calculated its fleet mix of petrol, diesel, hybrid and electrified models would rack up around £100m in fines.

The fines could be reduced by altering the mix of powertrains in favour of more electrified models, but factory capacity for such a dramatic short-term change in output is limited, largely because CO2-planning is being organised on an EU-wide basis and production plans for 2020/2021 have already been committed.

More diesels would help cut CO2 figures – but the government is actively shutting down that route by demonising diesel with threatened policy initiatives that have cut consumer demand.

Across Europe, brands have been planning their CO2 fleet averages with sales of larger cars in northern Europe balanced out by smaller cars in southern Europe. The UK’s Brexit plan cuts the UK industry off from this product planning mix, exposing UK car companies to huge fines.

The manufacturer that Autocar spoke to has ‘gamed’ several potential scenarios, the most severe of which would require a 20 per cent cut in sales in 2021 and a significant drop in profitability. Although that would reduce fines to a more reasonable £5m to £10m, the effect on its business would be dramatic.