The European auto industry is facing "a storm the potential size of a tornado," warns Fiat/Chrysler CEO Sergio Marchionne.

New car registrations in the European Union fell by 8.2% in 2012, dropping to their lowest level since 1995, according to figures from the European Automobile Manufacturers Association.

And with the European Union still struggling to resolve its debt crisis and pull out of recession, industry analysts fear the situation may likely get worse this year – a situation that could prove disastrous for some of the Continent’s weaker manufacturers who have already racked up billions of dollars in losses.

The European auto industry is facing “a storm the potential size of a tornado,” Fiat/Chrysler CEO Sergio Marchionne is warning. “This can’t go on forever” without doing serious damage to the industry.

Carmakers across the 27 EU countries registered 12.05 million new vehicles last year. Of the major markets, the United Kingdom was the only one to grow as sales climbed from 2011.

Sales in some key markets dropped by double-digits, according to the EAMA. Even Germany – the largest economy in Europe and one of the biggest car manufacturers in the world – saw its car sales drop 2.9% in 2012 compared with the previous year.

But sales in Spain fell by 13.4%, in France they fell by 13.9%, while in Italy they declined by 19.9% from 2011. Car registrations in Greece – which has been bailed out twice and is in deep recession – plunged 40.1% from 2011.

Figures for December exacerbated the overall annual decline. “In December, new car registrations declined by a sharp 16.3% in the EU, continuing a downward trend commenced 15 months ago,” the association said. “The decline is the steepest recorded in a month of December since 2008.”

Both Fiat/Chrysler’s Marchionne and Renault/Nissan head Carlos Ghosn said they expect sales across Europe to fall again in 2013. Moreover, the economic situation in Germany, which is critical to the overall economic health of the EU, also appears to be worsening, observers cautioned.

Meanwhile, the French carmaker Renault has made plans to eliminate 7,500 jobs by 2016 Renault said it expects some 5,700 jobs to go through attrition with the remainder coming from an extension of an early retirement program. The plans are subject to an agreement with unions.

Renault’s difficulties are directly linked to its heavy reliance on markets in the crisis-hit Eurozone countries, where car sales have fallen sharply in recent months, analysts said. The cuts represent about 14% of Renault’s workforce in France. The company has more than 120,000 employees worldwide.

But a number of other manufacturers have also begun pairing back. Ford announced several plant closings during the latter months of 2012 and after running up 14 consecutive annual losses, General Motors’ European subsidiary is also planning to cut production capacity. GM is again facing pressure to dump its German-based Opel subsidiary, a move it considered and then rejected three years ago.

(Key analyst demands GM sell Opel to revive stock price. Click Here for more.)

The European Automobile Manufacturers’ Association is made up of 18 car, truck and bus manufacturers, including premium carmakers such as Germany’s BMW and budget manufacturers such as South Korea’s Hyundai.