To warn or not to warn: that is the question increasingly facing carmakers across Europe.

The grim news facing the industry in Europe – and in particular mass-market manufacturers – increases with each day, be it plunging sales in most countries or the rising cost of raw materials that threatens to eat up profits quickly.

Adam Jonas, an analyst at Morgan Stanley, is blunt: “Eventually, everyone will warn – without exception.” He says the Latin manufacturers, led by Renault and PSA Peugeot-Citroën, are most vulnerable, with Fiat cushioned slightly by its successful business in Brazil.

“Every European volume player could lose money in a severe downturn. The earnings downside risk is as much as 100 per cent or more and you don’t need $130-140 oil for that,” he adds.

The proof of the pudding could start to come on Wednesday when Fiat, Peugeot and Volkswagen report second-quarter earnings. Almost nobody expects a warning from this trio over this quarter but nervous investors will be looking to the outlook for the second half of the year and beyond.

More likely is a warning from Renault, the French carmaker led by Carlos Ghosn, on Thursday after its downgrade of its sales target earlier this month.

Luxury carmakers such as Mercedes are somewhat more insulated from any downturn but analysts at Credit Suisse and elsewhere expect a warning some time this year from BMW.

Sales figures for June give a sign of the hard times ahead. Sales in the European Union fell 8.3 per cent compared with a year earlier but Italy was down by 20 per cent, Spain by 31 per cent and Ireland by 49 per cent.

“It is a bloodbath. Things just seem to be getting steadily worse.

“And if you look at their sales outlooks then every manufacturer is overproducing at the moment,” says Mark Fulthorpe, director of European vehicle forecasts at the CSM Worldwide consultancy.

The sales statistics alone suggest there could be trouble for Fiat, which still relies heavily on its domestic market. Indeed, the Italian group is to stop production at most of its domestic factories later this year for three weeks with hundreds of workers laid off temporarily.

But senior directors, who have reaffirmed the group’s short and mid-term targets, point to two strengths of Fiat: the strong performance in Brazil of its automotive division; and the fact that half of its revenues come from activities other than cars, such as trucks and agricultural equipment.

France’s car market has been one of the few bright spots in Europe thanks to the “bonus-malus” tax system introduced by the government to stimulate the purchase of small cars.

That should benefit Renault and Peugeot, the country’s two carmakers, but some analysts worry the wheels could be falling off their recoveries. “Peugeot is on the bottom rung of its recovery while Renault has poor capacity utilisation,” says Mr Fulthorpe.

Likewise, German sales have been positive this year albeit against a weak comparison.

For many, VW looks the most attractive of the mass-market producers with big product launches such as the imminent release of the new Golf hatchback.

Martin Winterkorn, chief executive, even speaks of a “special economic situation” for VW because of this. But analysts say VW can’t escape the downturn entirely in Europe and worry about how it will expand in the US where it is currently weak.

One of the few positives for the industry, however, is the growth in emerging markets with VW selling more cars in China than Germany and Russia.

However, Arndt Ellinghorst, analyst at Credit Suisse, fears that profits at mass-market carmakers could be all but wiped out by the increase in steel prices and other raw materials. “The manufacturers have €200-€300 ($317-$476) a car in extra costs – that is all their profits.”

Mr Jonas underlines that all this is coming at the worst possible time for carmakers as they pour money into developing alternatives to the internal combustion engine such as electric cars. But he concludes: “This industry is very good at losing money. It is not very good at going bankrupt.”