• by David Goetzl  @dgoetzl, August 1, 2008

There is no end in sight for struggling American automakers and bankruptcy--despite its possible taint to brand image--is a distinct possibility, according to analysts at Standard & Poor's credit ratings agency. 

 

"The outlook for the auto industry has worsened considerably since the beginning of the year as the weakness in the housing market has extended into the rest of the economy," S&P's chief economist David Wyss said.

On Thursday, S&P lowered its ratings on GM, Ford and Chrysler.

The analysts suggested sales for the Big Three could collectively fall 12% this year to its lowest level since 1993--a decline that Wyss said will make profitability "very difficult." Next year, another potentially steep drop is forecast.

The principal culprit comes as no surprise: oil prices.

With the $4-per-gallon range having spread, Wyss said Americans are buying fewer cars, buying smaller cars and driving less. In May, miles driven were down 9.7 billion from a year ago--the most precipitous drop since just after 9/11, Wyss said, speaking on a conference call.

The negative outlook through 2009 is a further disappointment for media outlets that are heavily reliant on the auto category and suffering from recent spending pullbacks. Just this week, Viacom said cuts have hurt its cable channels and Disney's 10 local stations.

Another negative: analyst Robert Schulz, who joined Wyss on the call, said it's not just Detroit's Big Three that are hurting. Somewhat surprisingly, he said Toyota was losing some steam.

Media outlets have looked to foreign automakers, top-lined by Toyota, to help offset spending declines from domestics. But Schulz said Toyota's sales are expected to decline this year. And the manufacturer won't produce any full-size trucks--an area in which it mounted a recent, much-publicized challenge to a chief Detroit revenue stream--between now and November.

Detroit has tried to alter its product mix to focus on smaller cars, but the S&P analysts indicated that the realignment comes with additional investment and lower revenue.

The analysts did not rule out any bankruptcy filings, but said they do not appear to be imminent, as the automakers have expressed commitments to turnaround plans. In addition, S&P said there are multiple reasons to avoid Chapter 11, including industry problems such as high oil prices, which are not expected to reverse. Schulz said there could be a potentially negative impact on brand image.

Wyss said what happens with energy prices is the wild card. S&P's negative outlook was based on oil going for $145 a barrel. It has since dropped to about $125, and may continue to fall to $115 next year.

But he said he has "no confidence" in any forecast.