UPDATE 2-Investor Ross sees supplier liquidations in '08

(Adds details on consolidation comments)

By David Bailey

DETROIT Jan 22 (Reuters) - The struggling U.S. auto parts sector will face even more challenges in 2008 than 2007, with one or more large companies possibly falling into liquidation, billionaire distressed investor Wilbur Ross said on Tuesday.

Ross also said the United States appeared to be slipping into a consumer-led recession despite the Federal Reserve's 0.75 percentage point rate cut on Tuesday.

Auto production is expected to be down in North America, flat to slightly lower in Europe and up enough in emerging markets to more than offset the declines in North America, Ross said.

However, emerging markets growth "will be of limited help to the U.S.-centric American supply base and I believe that the result will be liquidation of one or more of the large walking wounded suppliers and suppliers will begin to deal in a serious way with the excess capacity," Ross said in a speech at the Automotive News World Congress.

Known for his investments in the steel and coal industries, among others, Ross has been building businesses in the distressed auto parts sector in recent years that focus on interiors, frames and safety equipment.

The Ross-led International Automotive Components bought assets of the now liquidated auto interiors supplier Collins & Aikman Corp and combined them with the interiors business of Lear Corp (LEA.N).

Global consolidation remains inevitable as automakers seek more economies of scale, Ross said. There were 618 auto industry deals valued at $57 billion in 2007 and that trend will continue, Ross said.

"I believe that '08, compounding the problems of '07, will really provoke it, big time," Ross said of consolidation.

Ross said suppliers would have more ability to do fundamental research and development with a smaller and stronger supplier sector. More than 30 of the 50 largest parts suppliers in the world lost money in 2007, Ross said.

Ross said the U.S. consumer appeared "tapped out" and volume is likely to decline by 500,000 to 700,000 vehicles in the largely developed U.S. market that was propped up in recent years by incentives that pulled future sales into the present.

Auto industry analysts expect North American auto sales to fall in 2008, after a 2.5 percent decline to 16.15 million vehicles in 2007, which was the lowest level in a decade.

The "wealth effect" of rising home prices supported consumers in recent years and the "poverty effect" of declining home prices will weigh on them, he said, adding that home prices have a 65 percent correlation to auto sales.

"Middle class America has been living beyond its means for many years and securitization let them consolidate credit card and auto loans into mortgages which initially gave them extra cash," Ross said. "Now the cash has been spent and they must service the debt." (Reporting by David Bailey; Editing by Gary Hill)