Automakers Nissan, BMW and Jaguar Land Rover have all made big investments in U.K. plants in recent years. There are concerns Brexit could now hurt their exports to the European Union, the destination for more than half of all cars produced in Britain.
But the bigger and more immediate risk of a "leave" vote is to car sales, not investment -- and it's manufacturers like PSA Peugeot Citroen that don't have plants in the U.K. that are more vulnerable.
Britain led the recovery in car sales after the financial crisis of 2008. Low interest rates and a strong pound helped automakers and finance companies to offer customers cheap deals -- and keep automakers' factories across Europe occupied -- possibly to an unhealthy extent.
About 2.6 million new vehicles were sold in Britain last year -- which some analysts think is about 300,000 units more than might be expected in a "normal" year.
Brexit could pop that bubble, with a recession leading to a big slowdown in car sales. Evercore ISI analysts estimate Brexit would cause the U.K. market to shrink 4.5 percent this year and a further 10 percent in 2017.
A sales decline of that magnitude would be bad enough on its own, but the pain would likely be magnified by a sharp fall in the pound, hurting carmakers that don't make cars in Britain.
Only one in seven new cars sold in Britain is actually produced there, despite the much-vaunted renaissance in the country's automotive industry. Imported vehicles would become comparatively more expensive for U.K. buyers unless carmakers offered bigger discounts to keep sales going.
Price-cutting would be a particular challenge for mass-market brands as their margins are thinner and the U.K. market is already highly competitive, with discounting very common.
In absolute terms, Volkswagen is the U.K.'s market leader. However, Peugeot Citroen looks vulnerable because the U.K. represents a bigger chunk of its total sales.
Exane BNP Paribas analyst Stuart Pearson estimates that a 10 percent decline in U.K. car sales would cut PSA's pretax profit by about 5 percent. For every 1 percent fall in the pound against the euro, PSA would suffer a 1.3 percent hit to pretax profit before any hedging, he estimates.
However, premium brands like Jaguar, BMW, Audi and Mercedes would also face a tough time in the event of Brexit.
Due to the huge popularity of leasing, U.K. car buyers are driving vehicles they might otherwise struggle to afford. The country accounts for about 23 percent of the market for executive cars in western Europe, five percentage points more than before the financial crisis. That's been great for automakers' profits, until now at least.
Carmakers that have a footprint in the U.K. and source parts locally might be better able to ride out a collapse in the pound. In that respect BMW, has more protection than Daimler, for example, because it owns the U.K.-produced Mini and Rolls-Royce brands, providing a natural hedge.
Even so, Brits hoping to keep driving around an upmarket saloon for little money may want to pin their hopes on "Remain."
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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