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For Carmakers, Just How Bad Can It Get?

Stocks in this article: GM F

For the auto industry, the biggest question going into 2009 may surround just how low vehicle sales will fall.

Whatever the number, it almost unquestionably will be the lowest in at least 27 years. The specifics will be key to determining the automakers' fate, because that will directly impact how much Washington will be asked to do to save them.

While President-elect Barack Obama has made it clear that he plans to try, the sales numbers will go a long way toward defining the difficulty of the task.

In the end, the rescue methodology doesn't matter all that much. Sure, the industry detests the concept of bankruptcy. But it desperately needs to restructure, whether through bankruptcy or virtual bankruptcy, and whether it's overseen by a czar, a bankruptcy judge or a panel that resembles the Air Transportation Stabilization Board that helped to rebuild the airline industry after the 2001 terrorist attacks.

If sales are as bad as they are expected to be, the commitment to save privately held Chrysler -- by the government and its owner -- could lessen, and Ford (F) could be sucked into the morass along with Chrysler and General Motors (GM).

To summarize the outlook for each, GM will fight to avoid bankruptcy, and its sheer size -- it sells one of every five cars sold in the U.S. -- will ensure that the government battles to save it. Chrysler will probably look for a merger, and Ford will continue to seek to distinguish itself from the other two.

So how far will sales fall? "It's hard to lock in on a number these days," says Jeff Schuster, executive director of forecasting for JD Power & Associates. "We are looking at 11.4 million units, down substantially from this year and prior years, but we think there's enough risk out there that suggests volumes could be below 11 million without too much difficulty. All that has to happen is that we continue to trend at the levels we are at now."

Those levels are certainly a far cry from the not-too-distant past. In 2000 and 2001, more than 17 million cars and trucks were sold each year. In every year thereafter through 2007, manufacturers moved more than 16 million vehicles off lots. But 2008 has been horrid for the group, and the pain has extended to foreign makers such as Toyota (TM) and Honda (HMC) .

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