Defining 2008 as "just a horrendous year as a whole," Pickering pointed to the crash on wall street and the faltering housing market as two major factors that lead to the sales dropping 35% to 40% by year end. "Automobiles are, in a nutshell, luxury items. It is not something you go out and purchase on a whim, so when all of these factors started hitting, people couldn't afford to purchase automobiles."

To really get a pulse on how GM, Ford and Chrysler will fair, Pickering said there are two dates to watch; Feb. 17 and March 31. The February date is when the US-based auto manufacturers must have finished negotiations with the UAW to get the hourly salary of employees on a comparable level with foreign auto employees and submit a report on its progress to the Treasury Department.

GM's announcement yesterday, that it will cut 10,000 salaried jobs and slash pay by up to 10%, was part of this attempt to cut costs and increase viability. The job cuts account for 14% of the company's total work force. One-third of the layoffs will be in the US, according to reports. At the same time, Robert Lutz, GM's vice chairman announced his retirement, effective at the end of the year.

Chrysler revealed earlier this month it will temporarily close three plants. There is no word yet if temporary closings will lead to permanent closings and if the layoffs will mean more terminated plants.

By the end of March the companies need to present to Congress a restructuring plan that will further cut costs and make them viable again. If plans aren't in place the companies need to pay back all the bailout money they received from the government plus 5% interest. " We will see what happens at that point," Pickering said. "They are going to need more money is what it boils down to."

Plant closures, layoffs and intermittent closings of plants are all in the future. The companies will also need to reduce the number of types of cars they produce. Pickering said between the 'big three' there are 159 models of cars being produced, while Toyota, for example, makes nine different cars.

Pickering doesn't rule out Chrysler failing completely. "They are literally teetering on the brink of failure." Even with the proposed deal with Fiat, which would give the Italian auto maker a 35% controlling interest in the company, with the ability to increase that to 55% over time, Pickering is not sure that will mean salvation for the company. " Chrysler has a lot less plants a lot less employees they can literally disappear and not effect the market as much as if GM failed," Pickering said.

"Hopefully in 2010 you will see a rebound with whatever companies are left and however they are left," he said.

Instant Insights /

Auto Industry Will Continue to Weaken in 2009

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