The Federation of German Industries (BDI) said British Prime Minister Theresa May's government lacked a clear strategy on how to exit the European Union following 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."
To prepare for a disruptive British departure from the EU, the BDI said it had set up a task force including major companies, which trains-to-turbines group Siemens (>> Siemens) said it was part of.
This week's 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 hard Brexit would mean no agreement with the EU, and Britain falling back on World Trade Organisation 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 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.
Sources told Reuters in September that big players such as Airbus (>> Airbus SE) and Deutsche Bank (>> Deutsche Bank) were participants.
Siemens, which employs more than 15,000 people in Britain including a wind-power joint venture Siemens Gamesa (>> Siemens Gamesa Renewable Energy), said it was joining too. "Obviously we're very interested in this whole endeavour," a spokesman said.
Germany's VDA automobile association, which represents major manufacturers such as BMW (>> Bayerische Motoren Werke), is also involved, a VDA spokeswoman said.
The UK is the second-biggest export market for German car manufacturers with a value of nearly 29 billion euros (25.86 billion pounds). 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.
The industry preparations are the result of growing unease 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 Germany's 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 was 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.
(Additional reporting by Andreas Cremer and Georgina Prodhan; Reporting by Michael Nienaber Editing by Jeremy Gaunt)
By Michael Nienaber