U.S. auto sales, which are already at a 34-year low, will likely drop another 30% to 40% and may never recover to previous levels, finds a new report from CIBC World Markets.

The report projects that U.S. consumers will only buy about 8-9 million vehicles a year over the next five years, roughly half of the rate seen in the last half-decade. As a result, the report projects roughly half of the U.S.’s 51 light vehicle plants will be permanently closed in the coming years. This will see the loss of another 200,000 jobs in the sector, on top of the 560,000 jobs already lost this decade.

“Detroit’s biggest problem isn’t that it’s producing the wrong type of vehicles but rather, that it’s producing too many vehicles — far too many,” says Jeff Rubin, chief economist at CIBC World Markets. “Just as two million housing starts proved to be a bubble, so was the average 16 million unit auto sales of the last five years.”

“Easy credit is already gone. The credit bubble wasn’t just about sub-prime mortgages. It was just as much about car sales. Some two-thirds of vehicle sales in America over the last decade were debt financed,” adds Rubin.

The report finds that there will be 25 million fewer cars on the road in the U.S. in five years.

But Rubin believes Detroit’s problems are a lot bigger than the current recession.

“Recessions, no matter how deep, are finite affairs that rarely last more than four to six quarters. It’s the recovery that poses even bigger problems. The only reason gasoline is cheap, is because no one can afford to drive. When the recession is finally over, and Americans start filling up their SUVs, pump prices will go right back up to the $4 per gallon price they were last Memorial Day.”

He expects that rising energy prices will force more Americans to adopt European driving habits.

“Between consumer deleveraging, further job losses and ultimately soaring gasoline prices, tomorrow’s auto vehicle market in the U.S. is likely to shrink to something half its former size,” says Rubin. “A market of eight to nine million in annual vehicle sales is a much smaller market than Detroit is presently built for, particularly when imports continue to account for a growing share of new auto sales every year.”

IE