SOUTHFIELD – With U.S. automakers

reporting their worst monthly sales results of the year and no signs of

relief expected in 2009, Grant Thornton LLP Corporate Advisory and

Restructuring Services now contends that as many as 100,000

industry-related jobs may be at risk.

“With a more than 2 million unit sales decline likely this year

compared with 2007, followed by a prolonged slump expected next year, the

downturn is placing unforeseen levels of stress on the industry,” said

Kimberly Rodriguez, a Grant Thornton LLP principal. “We expect many players

do not have the cash, credit or means to see the cycle through.”

Monthly sales in September were the lowest of 2008, at less than 1

million units sold and the seasonally adjusted annual selling rate (SAAR)

at 12.5 million vehicles. For the full year, Grant Thornton analysts expect

full-year 2008 sales to drop to 13.8-million units, with the appearance of

downside risk growing daily. Given the weakening economic environment,

Grant Thornton forecasts 2009 sales between 13.4- and 13.7-million units.

“Yesterday’s results put the entire industry on alert, as many experts

had expected some level of recovery to occur in the second half of this

year,” said Rodriguez. “Nine months into 2008, sales and economic

conditions are worsening. We may not have seen the bottom.

“The full effect of such a 2 million unit decline from 2007 is

generally underappreciated and will likely lead to even higher unemployment

numbers,” she added. “Potentially, more than 100,000 jobs are at risk.”

Grant Thornton’s analysis shows that for automakers, a decline of one

million units of production is equal to the lost output of nearly four

vehicle assembly plants, 2.5 engine plants, and more than two transmission

plants on average.

At the Tier 1 supplier level, more than 50 just-in-time

assembly/powertrain sites and more than 500 supplier manufacturing

locations could be at risk of collapse, with the losses cascading down to

Tier II and Tier III operations, as well as the truck and rail companies

that ship components.

Contributing to the downside sales risk is the virtual halt of

automotive leasing in some market segments. Leasing rates are at a

four-year low, falling from 25 percent of all sales to less than 5 percent.

Chrysler, General Motors, Ford and even BMW all have scaled back leasing.

The short- and long-term effects of this pull back include a reduction

in forced demand, a potential shortage of used vehicles, an acceleration of

the shift to less profitable small vehicles and lower resale values.

“The last three quarters have seen a sharp curtailment in leases, high

commodity and energy costs, a tightening of credit and rising

unemployment,” said Rodriguez. “Consumers are fatigued, and we see more of

the same in 2009 based on our read of the underlying industry

fundamentals.”

Only a resurgence in consumer confidence, stable financial markets, a

resumption in the free flow of capital and a revitalized construction/real

estate market can mitigate the downside risk, she said.

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