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UPDATE 2-Prepare now for over-the-cliff Brexit, Germany industry says

* German industry looks with concern at Brexit talks

* BDI: May lacks clear concept despite talking a lot

* Industry task force to present proposals by year-end

* Tracking the Brexit Effect http://tmsnrt.rs/2o5MUVS
(Adds VDA automobile association)

By Michael Nienaber

BERLIN, Oct 5 (Reuters) - German firms with a presence in
Britain should make provisions now for a "very hard Brexit",
Germany's biggest industry group said on Thursday, because the
government in London does not know what it wants.

The Federation of German Industries (BDI) accused British
Prime Minister Theresa May's government of lacking a clear
strategy on how to exit the European Union after last year's
referendum.

"After four rounds of negotiations, German industry looks
with concern at the progress of the Brexit negotiations," BDI
Managing Director Joachim Lang told reporters in Berlin. "The
British government is lacking a clear concept despite talking a
lot."

The annual conference of May's Conservatives showed her
party remained deeply divided over Brexit and that a lack of
strategy was complicating the negotiations with the EU about
Britain's divorce talks, Lang said.

"German companies with a presence in Britain and Northern
Ireland must now make provisions for the serious case of a very
hard exit. Anything else would be naive."

A so-called hard Brexit means no agreement with the EU and
Britain falling back on World Trade Organization rules rather
than being in a tariff-free single market and customs union with
the bloc.

Britain is Germany's third most important single export
destination and its fifth biggest overall trading partner.

The industry group confirmed that it had set up a task
force, including major companies, to prepare for a disruptive
British departure from the EU.

Sources told Reuters in September that big players such as
Airbus, Siemens and Deutsche Bank
were taking part.

"The aim of the task force is to identify potential and
acute risks arising from Britain's departure and to present
constructive proposals for solutions," Lang said.

Germany's VDA automobile association, which represents major
manufacturers such as BMW, is also involved in the
task force meetings on Brexit, a VDA spokeswoman said.

The UK is the second-biggest export market for German car
manufacturers with a value of nearly 29 billion euros ($34
billion). German carmakers and suppliers also employ roughly
9,000 people at 95 production sites in Britain.

The BDI and VDA did not name individual companies taking
part in the task force meetings.

GROWING NERVOUSNESS

The industry preparations are the result of growing
nervousness after slow and acrimonious negotiations so far
between Britain's Brexit minister David Davis and his
counterpart at the European Commission, Michel Barnier.

In Europe's biggest economy, companies are now preparing for
the worst, including the imposition of tariffs and the risk of a
loss of access to London financial markets.

Foreign direct investments from both sides amount to some
140 billion euros and German companies employ roughly 400,000
people in the UK, according to BDI.

The task force, established in early summer, is accelerating
its work in regular meetings in Berlin, Lang said. It is
expected to present conclusions in December and this could also
help shape the position of the next coalition government.

Chancellor Angela Merkel has repeatedly made clear that she
regrets the British decision to leave the EU but that London
should not expect a special deal and that keeping the remaining
27 member states together is more important for her.

Dampening hopes among some Brexiteers that London could
succeed in driving a wedge between governments and companies in
other European countries, Lang said German industry fully backed
the EU's negotiation strategy.

"To make it clear: Yes, German industry wants to keep a very
close relationship with Britain. But have no doubt: We
prioritise the further development of the EU," Lang said.

"The ball now lies in Britain's court. The speech by the
British prime minister in Florence two weeks ago by no means
brought the clarity that had been hoped for," Lang said,
referring to May's attempt to speed up negotiations.

European Commission President Jean-Claude Juncker said on
Tuesday that the fourth round of negotiations did not produce
enough agreement for the EU to yield to May's demands for
immediate talks on a free trade deal and a transition to it
after Brexit.

($1 = 0.8519 euros)
(Reporting by Michael Nienaber Editing by Jeremy Gaunt)

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