Toronto, Ontario – The U.S. is producing too many vehicles, according to a new report from CIBC World Markets, and sales already at a 34-year low will likely drop another 30 to 40 per cent and may never recover to previous levels.

The report projects that American consumers will only buy about eight to nine million vehicles a year over the next five years, roughly half of what was purchased in the last five years. As a result, the report projects that roughly half of the 51 light vehicle plants in the U.S. will be permanently closed in the coming years, with a loss of another 200,000 jobs on top of the 560,000 jobs already lost in the sector 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,” said chief economist Jeff Rubin. “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. That was a product of a world of cheap oil and cheap credit, neither of which are likely to figure in the future.”

The report finds that there will be 25 million fewer cars on the road in the U.S. in the next five years. With the vast majority of sales purchased on credit, buying a new vehicle simply won’t be an option for many Americans as they struggle with record household debt levels and financing that is increasingly difficult to access.

Rubin said that the recession is not the least of Detroit’s problems. “Recessions, no matter how deep, are finite affairs that rarely last more than four to six quarters,” he said. “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.”

Rubin said he expects that rising energy prices will force more Americans to adopt European driving habits, meaning fewer cars, less driving, and more use of public transit. In 2008, Americans drove over 100 billion fewer miles, while transit ridership rose five per cent over the first three quarters of the year.

Stripping out imports, including North American cars made in Mexico and Canada, U.S. domestic production will likely shrink to between six and seven million units a year, down from a production peak of nearly 13 million units in 1999.