The boss of the Society of Motor Manufacturers and Traders (SMMT) has warned leaving the single market could jack up car prices.
Gareth Jones said the car industry will be hit with "billions" in tariffs should Britain not sign a deal keeping the sector within a tariff-free EU trading bloc. It will add at least £2.7bn a year to imports and £1.8bn to exports, according to new SMMT analysis.
Britain exported just shy of 80 per cent of the 1.6m cars it built last year and imported more than 85 per cent of the 2.6m cars sold in the country.
But if it doesn't secure access to the single market that could mean cars face World Trade Organisation tariffs of 10 per cent, pushing up the price of cars imported to the UK from Europe by an average of £1,500, should brands opt not to absorb the costs.
Speaking at the SMMT's annual dinner, Jones said: "We operate in an intensely competitive environment. We need to create the right conditions for future competitiveness, for developing skills and securing the strength of our economy by investing in R&D, and enabling new technologies to be developed here in the UK."
While he said the government has put industrial strategy at the "heart" of business and the department for business, he added that it does so while facing "its toughest challenge - leaving the EU".
"We want a strong UK economy and we want to see the UK's influence in the world enhanced. But this cannot be at the expense of jobs, growth or being an open, welcoming trading nation," he said.
In October, Nissan announced it will build its next two models at its Sunderland plant in the UK, securing 7,000 jobs after Brexit uncertainty. And Jaguar Land Rover recently announced it will be building its new electric car in the UK too.
But questions have persisted over what "support and assurances" were pledged to Nissan that resulted in its commitment to the UK.