It should come as no surprise that a supplier of drivetrains to the automotive sector is struggling. Car sales in the United States and Europe have collapsed and this has inevitably flowed through to suppliers such as GKN. Given the difficulties in the auto sector, investors cannot be surprised by GKN's announcement today that trading conditions are difficult and deteriorating. However, what is surprising is the speed and steepness of the decline.

In the past three months, GKN's sales were 4 per cent higher than last year, which is a good performance considering the state of the world economy. But the company has signalled that the downturn has really taken grip in the past couple of weeks and it is predicting that automotive sales will be down 15 per cent in the fourth quarter.

This is a savage correction and GKN's management is responding now, letting 1,400 temporary workers go and cutting other jobs. Factories will be closed or moved to shorter working days. GKN's management is experienced in dealing with the ups and downs of the auto sector, so it should be capable of responding appropriately to the current difficulties.

What is unknown is how long the auto downturn will last and whether the company's aerospace division will also be hit. GKN is predicting a 9 per cent fall in auto sales next year but is optimistic that aerospace will hold up, largely due to sustained high US defence spending. There is some uncertainty over the civil aerospace sector as orders may evaporate if airlines go under in a large number this winter. If that happens, then GKN, which is buying Airbus's Filton factory near Bristol, may find that its two largest divisions contract next year.

As a result, analysts' forecasts look pessimistic. GKN has already indicated that profits will fall from £231 million to between £196 million and £206 million this year but Evolution Securities gave warning today that profits could fall to £107 million next year. Dividends are likely to be cut and the company is carrying £600 million in debt, which is never a comfortable sight in a downturn.

On the upside, GKN is protected by its exposure to the defence sector and its solid market positions in civil aerospace.

GKN's share price is down 72 per cent from this time last year but, given the uncertainty over the stability of its markets in 2009, the company is not yet a buying opportunity.

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