The world’s largest auto market is reeling from an unprecedented combination of record gas prices, tighter credit and a housing market collapse.

Investors will have to wait until 2010 for signs of a rebound, according to a wave of bearish analyst forecasts issued on Wednesday.

Merrill Lynch analyst John Murphy, while cutting his outlook for 2008 US auto sales for the third time this year to 14.3 million units, forecast a further drop to 14 million units in 2009.

“We believe that the weakness in demand and deteriorating mix through the first half of 2008 are just the beginning of what is shaping to be a more severe downturn than even the most bearish industry observers expected,” Murphy said.

Through the first half, automakers including General Motors Corp and Ford Motor Co have struggled for any signs that the market has hit bottom.

Instead, sales deteriorated each month, as the spike in gas prices killed demand for trucks and SUVs – America’s best-selling vehicles for a decade.

US auto sales plunged to 13.6 million units on an annualized basis in June, the lowest monthly result in 15 years, compared with 15.2 million in January.

That has raised concerns that the downturn may deepen for the rest of the year, and possibly through 2009.

“The perfect storm conditions that rippled through the industry in May 2008 intensified in June, driven by a combination of worsening consumer conditions and depressed used vehicle prices,” Citigroup analyst Itay Michaeli said in a research note.

“With little relief in sight,” Michaeli said he cut his forecast for 2008 US auto sales to 14.5 million from 15 million. He said the market would stay depressed at 15 million units next year, with any gains seen only after 2010 or 2011.

Just six months ago, most automakers including GM and Ford as well as Wall Street analysts had predicted a slight decline this year in auto sales from 16.15 million in 2007 before a full-pledged recovery in 2009.

“The economy enters the second half of the year with a notable absence of momentum and a high degree of uncertainty,” Ford marketing chief Jim Farley said during a conference call on Tuesday following its sales announcement.

In light of weak June sales, Global Insight also lowered its outlook for US light vehicle sales this year to 14.4 million, while projecting even lower sales of 14.2 million units next year.

The steep drop in auto sales has been led by big trucks and SUVs, the most profitable and highest volume segment for Detroit-based automakers.

Gas prices at more than $4 per gallon have steered a rush toward more fuel-efficient smaller cars and crossovers, depressing the resale values of used trucks and SUVs. The lower trade-in values make it harder for large vehicle owners to afford smaller and more fuel efficient cars, dealers say.

Trucks, which represented 55% of US light vehicle sales in 2004, made up just 44% of the market in June.

The trend represents a major financial drag for GM, Ford and Chrysler because they make smaller margins on cars than trucks.

In addition, Detroit car makers have historically had to price their products as much as $5,000 to $7,000 less than a comparably equipped Japanese or Korean vehicle in order to overcome consumer perceptions of differences in quality, Moody’s Investors Service said in a note on Wednesday.

“In order to materially offset the profits foregone by the erosion in the truck/SUV franchises, the Detroit 3 would have to significantly raise prices. This will be a long-term and highly challenging undertaking,” Moody’s said. (Reuters)