Reuters reported that the automotive sector is turning out to be a key transmission system for the banking crisis to affect the real economy and for the US economic slowdown to become a global economic slowdown. Since the automotive is such a big end use sector for industrial metals, it is also the direct transmitter of financial meltdown to metals price meltdown via slumping demand.

The United States automotive sector was in trouble well before the financial maelstrom hit with full intensity in September. Indeed, it has been one of the two maximum points of global metals demand weakness, along with US residential housing, for well over a year.

However, things are getting worse. First, there was the oil price shock in the second quarter, which culminated in crude hitting all time highs above USD 147 per barrel in July. That devastated the fuel-guzzling SUV part of the market. Now automotive sales are slumping across the board in response to the tightening in retail credit resulting from the crunch in wholesale credit markets.

US buyers use credit for more than 90% of all new vehicle purchases, which is why industry wide auto sales plunged 26% in September. No major automaker was spared, not even the likes of Toyota which up until now has weathered relatively well the storm.

Based on those September figures, industry consultant Grant Thornton estimates that vehicle sales will fall by 2 million units year on year to 13.8 million units in 2008. The company warns 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.

At the Tier 1 supplier level, more than 50 assembly power train 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.